Pakistan Strategy: Moody’s cut outlook; backdrop for rating downgrade remains
- In a not-so-unexpected development, Moody’s Investors Service (Moody’s) has changed the outlook on Pakistan’s sovereign rating from Stable to Negative. The rating agency has however maintained the current rating at B3.
- Moody’s has also highlighted estimates on major macro indicators (GDP, Inflation, Twin Deficit) which are not very different from ours and other consensus estimates.
- The change in outlook highlights the need for further policy action by authorities and brings Pakistan a step closer to IMF door. Following 15.4% devaluation and policy rate hike, the onus for addressing external account now falls on fiscal policy.
- The rating change has effectively undermined Pakistan’s ability to raise external debt at lower cost and opens the door for potential rating downgrade in case of inadequate response to external account challenge.
- We see possibility of heightened volatility in equity (2-3% downside). With growing challenges on macro and corporate earnings growth, the environment for the market to repeat the past feats during the interim set-ups (average 15.5% return) has become even tougher, in our view.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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