Karachi, Alfalah CLSA Securities (Pvt) Limited (ACLSA), a venture between Asia's leading brokerage and investment group CLSA and Bank Alfalah Limited, has been assigned a rating watch by The Pakistan Credit Rating Agency Limited (PACRA). This decision reflects concerns about significant financial provisions and the need for stronger internal controls, despite recent improvements in market conditions and investor engagement.
According to The Pakistan Credit Rating Agency Limited, ACLSA has faced challenges over the past fiscal years due to low investor engagement driven by high-interest rates and inflation. However, the second quarter of FY24 saw a resurgence in investor interest, contributing to record highs in the KSE-100 index and expected market stability for the remainder of the fiscal year. Despite this positive trend, the rating watch was prompted by a substantial provision of approximately PKR 1.1 billion made by ACLSA in December 2023 for potential uncollectible debts, indicating significant risk management concerns.
The company responded to these financial challenges by injecting roughly PKR 1.2 billion in equity from its primary sponsor, which helped mitigate the financial impact of these provisions. ACLSA also undertook steps to enhance its internal controls framework, aiming to address the identified risks and improve operational efficiency.
During the first nine months of FY23, ACLSA reported a 34% increase in revenue from equity brokerage, driven largely by heightened activity from retail clients. Nonetheless, the company recorded a net loss of approximately PKR 10 million during this period, exacerbated by a 57% rise in finance costs and a 37% increase in administrative expenses.
ACLSA's equity base stood at approximately PKR 331 million at the end of September 2023, slightly down from PKR 341 million the previous year. The company has a well-developed organizational structure and experienced management team, which PACRA notes as strengths. However, the absence of a dedicated risk management department and the need for enhanced governance with the induction of certified independent directors are areas highlighted for improvement.
Looking ahead, PACRA indicates that ACLSA's ability to improve its core income, retain market share, and diversify revenue streams will be crucial for enhancing its rating perspective. Additionally, maintaining robust internal controls, retaining key personnel, and diligently monitoring risks are essential for the company's long-term stability and success.