Objectives: Pak Brunei Investment Company Limited is a joint venture between the Government of Pakistan and Brunei Investment Agency (BIA). The Company completed three years of its operations in December 2010 and has established strong and profitable platforms for Investment Advisory, Corporate and Project Finance, Treasury and Capital Markets Operations under its merchant banking umbrella.
Business Activities
ADVISORY AND STRATEGIC INVESTMENTS (ASIG)ASIG helps us achieve our goals of pursuing innovation in financial structures and in development of new projects. It plays a pivotal part in our strategy to be a broad based merchant banking outfit. The team has been successful in FY2010 in identifying growth opportunities and providing structured debt & equity solutions to unlock value for clients, co-investing wherever feasible. Of prime focus are identification, evaluation and implementation of new strategic initiatives in line with the business plan. A new area of activity was in undertaking restructuring of projects and enterprises in financial distress - in the current environment this becomes critical, possible and profitable.
Headed by an experienced investment banker, the team was successful in soliciting new relationships and in supporting the asset pipeline for Corporate Banking, Treasury and Capital Markets portfolios.
CORPORATE BANKING (CBG) The Corporate Banking Group (CBG) focused on adding defensive exposures to the portfolio during the year as it was apparent that economic recovery would take time. Viable prospects were identified in different sectors including export-oriented textile companies, pharmaceuticals and food sectors. Simultaneously, significant reduction in troubled assets was achieved through successful recoveries and realisation of collaterals. Our culture encourages risk awareness and mitigation at all levels, with the front offices being our first line of defence. Accordingly, we have been able to maintain sound asset quality.
Development aspect forms a key component of our credit strategy. There is considerable focus on non-recourse project finance, lending for revival of sick units with potential for turn around and providing acquisition financing where a smaller player of the industry has the potential to outperform its peers. We are also a Participating Finance Institution ("PFI") for financing export oriented projects on subsidised rates under State Bank of Pakistan's Long Term Finance Facility Scheme.
i) Product Development: Currently, CBG offers long term loans, short term loans. Long term loans under SBP LTF scheme for export oriented projects, lease finance and letters of credit/guarantee through risk participation agreements. Going forward, we intend to expand our array of products by introducing short term off-the-shelf and trade facilitating products. Our two year product development plan also includes sector specific products.
ii) Loan acquisition: In order to support infrastructure and industrial development projects, CBG intends to build up a low risk loan portfolio by acquiring existing loans from the market which fit our risk criterion. This will act as a shock absorber for our developmental activities, and
iii) Project/Infrastructure Finance: CBG will work closely with the Advisory team to help develop and finance bankable structures for economically feasible infrastructure projects. The teams are already working with one provincial government to help develop an umbrella structure for infrastructure financing along the same lines as is the norm in regional market.
TREASURY AND FUND MANAGEMENT: The Treasury Group continues to play a key role in balance sheet management. In an environment of monetary tightening, interest rate and liquidity risk management have become crucial for any financial institution. At Pak Brunei, these risks are mitigated by monitoring the duration and proportion of fixed and floating rate exposures on both sides of the balance sheet. Low cost funding has been availed from SBP LTF - EOP facility providing us the leverage to add blue chip exposures to our portfolio and also enabling us to support export based entities that lack access to long term capital. Our focus remains on having adequate liquidity levels at all times to support asset build up activities.
The Group participated in fixed income debt market through investment, distribution and market making for Corporate Bonds / Sukuks and Commercial Paper issues. Pak Brunei maintained an active and highly profitable trading desk for corporate bonds helping to generate market interest and liquidity for fixed income instruments. Cumulative trading turnover rose to PKR 30 billion from PKR 13 billion, a year ago. Going forward, Treasury plans to broaden its funding base through non-conventional products, aggressive corporate deposit mobilisation and spread trading.
CAPITAL MARKETS: The Karachi Stock Exchange maintained a cyclical trend during the first three quarters of FY2010 with a steadier increase in the index towards the last quarter. Overall KSE-100 Index increased by 28% or 2,636 points from January to December 31, 2010. Maintaining the policy of prudent trading, our highly disciplined technical trading team realised a return of 25% over the average investment portfolio during the year. We remain a conservative investor with the primary objective and performance criteria being preservation of and adequate risk adjusted return on invested capital.
RISK MANAGEMENT: We understand the need to continually enhance and enforce proactive risk management in the organisation. During the year, the Centralised Risk Management Unit was divided into Credit Risk Management (CRM) and Middle Office & Operational Risk Management (MOOR) with senior level resources on each side. The move was in anticipation of growing scale of operations where the different businesses requiring risk watch could receive closer attention. We have a holistic view on risk management, be it credit, market or operational risk which are monitored across all asset classes and functional areas of the Company.
Entity Rating: During its rating review process in 2010, PACRA maintained the long term rating of AA thereby denoting its confidence in the Management Team and its accomplishments so far, and the sound financial health of the Company.