Get documents about "CRAB Ratings Corporate Credit Rating Report Venture Investment
Document Sample
CRAB Ratings Corporate
Credit Rating Report
Venture Investment Partners Bangladesh Ltd.
RATIONALE
Rating Outstanding (5 November 2009)
Long Term : ‘BBB2’ Credit Rating Agency of Bangladesh
Validity : 30 June 2010 Limited (CRAB) has assigned ‘BBB2’
(Pronounced triple B two) rating in the
Long Term to Venture Investment
Analyst: Partners Bangladesh Ltd (hereafter
referred to as VIPB or the Company) in
Nur Elahee Molla
view of the performance of the company
Financial Analyst for the business year 2008 and other
nur_elahee@crab.com.bd relevant information.
Financial Highlights Corporate entities rated BBB in the long
BDT in Million
term belong to ‘Adequate Capacity’
2008 June 2009
cohort. Corporate entities rated BBB
(Un-audited) have adequate capacity to meet financial
Shareholders' equity 128.63 144.74 commitments but are more susceptible
Long term liability 0.54 2.78 to adverse economic conditions due to
Total current liabilities 8.62 49.47 changing circumstances and are also
Total fixed assets 91.26 69.53
subject to moderate credit risk.
Total assets 137.80 196.99
Operating income 15.52 9.72
Operating profit 4.86 2.35
CRAB has performed the present rating
Net profit after tax 2.47 1.11 assignment based on audited financial
Operating profit margin 31.30% 24.16% statements of 31 December 2008 and
Net profit margin 15.95% 11.44% other relevant information. The rating
ROA 1.80% 0.56% also takes into account business profile,
ROE 1.92% 0.77% business model, the past record and
Debt to asset ratio 6.65% 26.52% trend of operating performance (upto
June 2009) and balance sheet strength
of the Company.
Exhibit: Revenue Collection Pattern
VIPB was incorporated as a public limited
2.50 company with an objective to promote
the growth and development of
A m o u n t i n M illio n B D T
2.00
1.50
strategically important sector of national
development, i.e., Small & Medium
1.00
Enterprises (SME). In excess to financing
0.50
the SMEs, the Company has a plan to
0.00
Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun-
provide technical assistance and total
08 08 08 08 08 08 09 09 09 09 09 09 business solution in the future. The
Expected revenue Actural revnue Company was set up as joint-venture
between foreign investors (NRB) from US
Page 1 of 3
CRAB Ratings Corporate
and institutional sponsors from Bangladesh. The Company obtained No
Objection Certificate from Bangladesh Bank to be registered in Bangladesh as Company
under the conditions – (i) VIPB can’t conduct ‘Finance Business’ defined in Bank Company
Act, 1991 and The Financial Institutions Act 1993 ; (ii) The investment of Non-residential
Entrepreneurs has to be complied with the existing Foreign Currency Act.
The rating considers the entrepreneurial strength of the Company especially the
sponsorship of the banking institutions. The Company was incorporated with an initial
authorized capital and paid up capital of BDT 300.0 million and BDT 125.0 million
respectively as on 31 December 2008. Foreign sponsors (NRB) contributed 40% of the
capital and the remaining 60% capital was infused by local companies.
VIPB launched the operation with a unique model that is developed with the concept of
low cost outsourcing of market search and oversight activities targeting SME
entrepreneurs having lack of access to Microfinance Institutions and Banks or other
financial institutions. The execution of outsourcing services depending on three Master
Service Providers (MSPs) and trained Local Service Providers (LSPs) are taken into
consideration while rating although the agreements restrict the MSPs from selling any
financial product that is similar to products provided by VIPB which will eventually
minimize the risk. The ultimate investment decision is done by the investment team
based on set procedure and criteria. The Board takes investment decisions that fall
beyond the discretionary power of the investment team (Upto BDT 1.50 million). The
monitoring activities are done by both the Local Service Providers (LSPs) and the Head
Office. The commission of LSPs is paid depending on the collection of revenue which will
eventually strengthen monitoring system as well as ensure revenue stream.
VIPB executed its first investment in March 2008 under the developed model and 150
investments amounting BDT 113.25 million in the same year. Upto June 2009, the
Company had 246 investments amounting BDT 181.25 million. As per information
provided by VIPB, the year-end collection rate for 2008 was 87.75% considering
investment amount and 90.47% considering revenue amount. The monthly revenue was
receivable ranged from 16% to 57% from April 2008 to June 2009 registering an average
rate of 32% although most of the accounts receivable was in cheque in the process of
collection. The Company has two investments whose payments were due for more than
four months. However the accounts receivable and number of bad investment may
increase with the increase of operation of the Company which will eventually enhance risk
in the upcoming years. Presently the Company is keeping 1 percent provision for quasi-
equity investment on outstanding amount although it has no classification procedure or
criteria and specification regarding the termination of investment regarding default in
payment.
Diversification of investment in 8 sectors and 16 districts was also considered while rating
the Company. The investment was also diversified in number of investment and size of
the investment. Venture capital investment is considered as a risky investment for its
inherent characteristics. Presently the Company keeps its business risk at comparatively
low level by highly concentrating on fixed revenue arrangement, although it has other
products; equity investment and quasi-equity investment where investment is collected
as a combination of fixed revenue and revenue sharing characteristics. However the
expected increase in the equity investment in the upcoming year and increasing trend in
Page 2 of 3
CRAB Ratings Corporate
financial leverage may result in increasing risk for the Company and slow down the profit
margin for immediate year. Although the present diversification of investment in terms of
size minimizing the concentration risk that may subsequently decrease with the
increasing investment size in the upcoming year.
In 2007, the operating income (BDT 5.11 million) of VIPB was only in the form of interest
on FDR as there was no disbursement as investment upto March 2008. The Operating
income and profit of the Company stood at BDT 15.52 million and BDT 4.86 million
respectively in 2008 registering an operating profit margin of 31.30%. The earnings were
1.80% of average assets and 1.92% of average equity in 2008. Although the debt ratio
was very low (6.65%) in 2008 it became 26.52% which may further increase in the
upcoming year with the increase of operation.
The rating also takes into account the ownership structure, profile of the Board members,
Board’s effectiveness, and business strategy of the Company. Although the process of
date and information management are comparatively timely and useful throughout the
entire company VIPB is yet to develop integrated software to cope with the development
of the business. It is understood from the management that the Company has a plan to
install integrated software to enhance the monitoring and control system. The rating also
considered the vision and objectives of the Company, experience of the top management,
training arrangements, presence in different geographical areas and marketing strategy
as well as competitive advantage in the marketplace to identify its growth potential.
Page 3 of 3
Related docs
