Internship Report on Saudi Pak Industrial and Agricultural Investment

Company Limited

Submitted by

Muhammad Irfan

MBA-IV
Session: 2009-2011

Supervised By

Ms. Perkha Khan

Quaid-i-Azam School of Management Sciences

Quaid-i-Azam University

Islamabad
 Acknowledgement

My greatest thanks to Allah Almighty Who bestowed me with the ability and potential to
complete this Internship. I wish to thank the managerial staff at Saudi Pak Industrial and
Agricultural Investment Company who helped me to gain a lot of information regarding the
company and DFI’s. I am thankful to Mr. Zubair (visiting faculty in QASMS) who arranged an
opportunity to do internship in Saudi Pak so that I may learn and understand the working of
organization as an internee. I am very appreciative to all my teachers who conferred in me
knowledge such that I was able to pertain that in the organization in the form of reports and
acquaintance.

I would heartily give special acknowledgement to Ms. Perkha Khan, who has really helped and
cooperated with me irrespective of her busy routine. Her conscientiousness and diligent support
have made me feel proud on the successful completion of this project.
 Executive Summary

Saudi Pak agricultural and investment company is a Development Finance Institution (DFI),
regulated by the State Bank of Pakistan. Saudi Pak Industrial and Agricultural Investment
Company Limited was incorporated in 1981 under a joint venture Agreement signed between the
governments of Islamic Republic of Pakistan and Kingdom of Saudi Arabia. There are two
regional offices of Saudi Pak Industrial and Agricultural Investment Company; Lahore office,
Karachi office. The head office is in Islamabad. My internship was in the head office. Like other
developing countries in the region, DFIs were established in Pakistan during 1950s and 1960s.
The main purpose to establish this sector is to foster economic development with assistance from
International Financial Institutions (IFIs). These DFIs are major channels for routing
development funds to the private manufacturing sector and achieving the desired socio-economic
objectives, such as encouraging new entrepreneurs, promoting industries in the less developed
areas and wider diffusion of industrial ownership.

In Pakistan DFIs are also assisting the Government in screening new development projects,
framing economic development plans or policies, rehabilitating sick or problem projects and
administering special loans provided by the government. Saudi Pak Industrial and Agricultural
Investment Company (SAPIAICO) is one of the leading DFIs, working in Pakistan from last
thirty years. Since its inception to date, it has extended loans to 800 development projects. Its
journey towards excellence is going on and with the passage of time; it is modernizing itself
according to the upcoming trends. In this report 1st chapter consists of the complete history,
working structure, types of deals and projects with the financial, 2nd chapter consists of my
personal experience, 3rd chapter consists of company analysis and 4th chapter consists of
conclusion and recommendations.

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 Table of Contents
Internship Report on Saudi Pak Industrial and Agricultural Investment Company Limited.............i
Acknowledgement.....................................................................................................................................ii
Executive Summary...................................................................................................................................i
Chapter No 1..............................................................................................................................................1
Introduction...............................................................................................................................................1
Introduction............................................................................................................. 2
History of Investment Banking.............................................................................2
Saudi Pak Industrial and Agricultural Investment Company.................................2
History of Saudi Pak Company.............................................................................5
Affiliates............................................................................................................... 5
Saudi Pak Leasing Company Limited....................................................................5
Saudi Pak Insurance Company Limited................................................................6
Saudi Pak Real Estate Limited..............................................................................6
Functions of Saudi Pak Agricultural and Industrial Company...................................6
Main Departments and their Operations in the Head office....................................8
Chapter No 2............................................................................................................................................12
Learning and Personal Internship Experience......................................................................................12
1st Week...............................................................................................................13
2nd Week..............................................................................................................13
3rd Week............................................................................................................... 14
4th Week...............................................................................................................15
5th Week...............................................................................................................15
6th Week..............................................................................................................16
Chapter No 3............................................................................................................................................17
Performance Analysis of the Company..................................................................................................17
3.1 SWOT Analysis.................................................................................................18
Strengths...........................................................................................................18
Weakness...........................................................................................................18
Opportunities..................................................................................................... 18
Threats............................................................................................................... 18
PEST Analysis........................................................................................................ 19
Political Factors..................................................................................................19

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 Economical Factors............................................................................................19
Social Factor.......................................................................................................20
Technological Factors.........................................................................................20
Analysis.................................................................................................................21
Balance Sheet.................................................................................................... 21
Profit and Loss Account......................................................................................21
Ratio Analysis.....................................................................................................21
Chapter No 4............................................................................................................................................23
Conclusion and Recommendations........................................................................................................23
Conclusion............................................................................................................. 24
Recommendations.................................................................................................25
Annexure..................................................................................................................................................26
References................................................................................................................................................34

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Chapter No 1

Introduction

1
Introduction

History of Investment Banking

An investment bank is a financial institution that assists individuals, corporations and

governments in raising capital by underwriting and/or acting as the client's agent in the issuance
of securities and/or by providing loan. An investment bank may also assist companies involved
in mergers and acquisitions, and provides ancillary services such as market making, trading
of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities.
There are two main lines of business in investment banking. Trading securities for cash or for
other securities (i.e., facilitating transactions, market-making), or the promotion of securities
(i.e., underwriting, research, etc.) is the "sell side", while dealing with pension funds, mutual
funds, hedge funds, and the investing public (who consume the products and services of the sell-
side in order to maximize their return on investment) constitutes the "buy side". Many firms have
buy and sell side components. An investment bank can also be split into private and public
functions with a Chinese wall which separates the two to prevent information from crossing. The
private areas of the bank deal with private insider information that may not be publicly disclosed,
while the public areas such as stock analysis deal with public information.

(Wikipedia, 2010)

Saudi Pak Industrial and Agricultural Investment Company

Saudi Pak agricultural and investment company is a Development Finance Institution (DFI),
regulated by the State Bank of Pakistan. Saudi Pak Industrial and Agricultural Investment
Company Limited was incorporated in 1981 under a joint venture Agreement signed between the
governments of Islamic Republic of Pakistan and Kingdom of Saudi Arabia. Initially it was
private limited company and 2008 it was converted into public limited company. The initial
authorized capital of the Company was Rs. 1,000 million as of December 31, 2009 paid up
capital of the Company amounted to Rs. 6,000 million.

Saudi Pak owns a twenty-storey high rise building in Islamabad known as Saudi Pak tower. The
building, a landmark in Islamabad was constructed in 1991 and has been awarded ISO
9001:2008 certification. A major portion of the building has been leased out. An executive
business center has also been established in the tower, which is equipped with the state of the art

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facilities.

The break-up of the share holding is as follows: Kingdom of Saudi Arabia 50% (through public
investment fund) and Government of Islamic Republic of Pakistan 50%. (through State Bank of
Pakistan). Saudi Pak has a diverse product range to cater to growing needs of its corporate
customers in the private and public sectors. The existing product mix comprises of the following
products and services: Project Finance; Medium to Long Term Financing, Lease Financing,
Term Finance Certificate (TFCs), Long term finance for export oriented projects (LTF-EOP),
Long term finance for the purchase of locally fabricated machinery, Short term loans to meet the
working capital requirements, Direct equity investments, Underwriting of public issues of shares
and term finance certificates, Non-funded commitments in the form of guarantees, Syndication,
Trusteeship, Financial arranger/ Advisor and Consultancy services. For the management
structure of the company. See annexure-A and annexure H, for management structure and
organogram.

(Saudi Pak, 2010)

1.1.1.1 Corporate Vision

To excel in performance and play a leading role in the financial sector in Pakistan

(Saudi Pak, 2010)

1.1.1.2 Mission Statement

Saudi Pak aims at strengthening economic cooperation between the brotherly people of Saudi
Arabia and Pakistan. To achieve this objective, we are committed to add value for our
stakeholders through capital formation and investment related activities in Pakistan.

(Saudi Pak, 2010)

1.1.1.3 Corporate Objectives

The corporate objectives of Saudi Pak Investment Company are to Promote investment in
industrial projects with high value addition, export potential and maximum utilization of
indigenous resources, build and manage a diversified equity portfolio promising optimum return,
mobilize funds in a cost effective manner to meet our financial needs, achieve sustainable growth

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and be competitive in our commercial operations and undertake investment advisory services and
formation/participation in financing syndicates.

(Saudi Pak, 2010)

1.1.1.4 Core Values

The core values of Saudi Pak Investment Company are Professionalism in conduct,
competitiveness in business, transparency in operations and ethics in dealings.

Integrity

They are all answerable for their decisions and actions, to their selves before anyone else. A clear
conscience results in ennoblement of the spirit and empowerment of the mind.

Team work

Be it an organization, a society or a country – it is the individual commitment to the group effort

that brings about results and leads the collective to success. Determination:

Ordinary people are capable of the extra-ordinary achievements through sheer determination and
a clear vision.

Resilience

Life is nothing but a series of highs and lows. The hard times test one’s mettle. The ones who
pass the trial by the fire are destined for the greatness.

Consistency

Once a team has delivered its best, no less is ever expected of it. That is how benchmarks are set.
Meeting and exceeding those benchmarks is the hallmark of the champions.

Trust

One must begin to trust one’s own self before winning the trust of others. Trust begins a chain of
confidence that strengthens its every link.

(Saudi Pak, 2010)

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History of Saudi Pak Company

At first Saudi Pak Industrial and Agricultural Investment Company’s office was in a rented
building then in 1992 Saudi Pak tower was completed and Head Office was shifted to Saudi Pak
tower. In 1997 Saudi Pak acquired standard chartered mercantile leasing company limited which
was later named as Saudi Pak leasing company limited. In 1999 regional office of Saudi Pak
company was established in Karachi. One of the great milestones of Saudi Pak is the acquisitions
of the prudential commercial bank which was later named as Saudi Pak Commercial Bank. The
other milestone was the setup of regional office in Lahore. In 2005 the other great achievement
was the setup of the Saudi Pak insurance company which is established completely in Pakistan.
In 2006 regional office was established in Riyadh. In 2006 Saudi Pak real estate limited started
commencement of its operation which is now made a solid base in Pakistan and is a profitable
venture. Saudi Pak Commercial bank was experiencing some problems due to economic slump
in the whole world due to disinvestment was made in Saudi Pak commercial bank which is now
named as Silk Bank Limited.

(Saudi Pak, 2010)

Affiliates

Saudi Pak believes in organic growth through expansion in its core operations as well as
horizontal growth through strategic investments. Strategic investments have been undertaken in
vital sectors of banking, leasing, insurance, real estate and commercial building space.
Investment in Saudi Pak Commercial Bank limited (presently Silk Bank) was divested in 2008
which resulted in a capital gain of Rs. 6,411 million. The Bank was purchased by a consortium
of international institutions resulting in foreign direct investment of US$ 160 million.

(Saudi Pak, 2010)

Saudi Pak Leasing Company Limited

The company is listed at local bourses and is among largest companies in the leasing sector. Paid
up capital of the company is Rs. 451.6 million with Saudi Pak’s stake at 35%. Asset base of
Saudi Pak leasing as on June 30, 2009 was Rs. 5902 million, Rs. 1881 million were net
investments in lease. Leasing sector has been hit hard during global financial meltdown which

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along with regulatory compulsion relating to minimum capital requirements (MCR) is
compelling the company to explore strategic solution to return to its track record of profitability.

(Saudi Pak, 2010)

Saudi Pak Insurance Company Limited

The company commenced its operation in April 2005 with its head office at Karachi. It has paid
up Capital of Rs. 325 million and has its presence in major cities of the country through 11
branches. The company in 2009 consolidates its branch network and was more cautious toward
business in the back drop of recent recession. Conservative approach on risk selection through
resulted in reduction of around 8 percent in gross premium but bottom line improved
significantly. The Company is at breakeven in 2009 and is expected to be profitable in 2010. The
company plans to achieve a growth of around 22 percent in year 2010. A conservative approach
on planned to maintained in order to acquire better quality business and avoid losses.

(Saudi Pak, 2010)

Saudi Pak Real Estate Limited

Saudi Pak Real Estate Limited started its operations in December 2007 with an initial paid up
capital of Rs. 100 million. The capitalization of the Company has enhanced to Rs. 500 million
through two right issues of Rs. 150 million and Rs. 250 million in 2008 and 2009 respectively.
The Company achieved its breakeven in 2008 and earned net profit after tax of Rs. 45.21 million
in 2009. Total assets of the Company stood at Rs. 531.347 million as on December 31, 2009.

The Company at present is in the process of the finalizing two housing scheme projects at the
prime locations in historical city of Lahore and is also evaluating a residential cum commercial
project in Karachi in association with well known and experienced market players. These
projects are expected to yield healthy return for the company besides helping it to enhance its
capacity building and brand image.

(Saudi Pak, 2010)

Functions of Saudi Pak Agricultural and Industrial Company

Main function of Saudi Pak Industrial and Agricultural Investment Company is to provide
financing to different projects. As it is the joint venture of Saudi Arabia and Pakistan so this

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company provides financing to those projects that play important role for the development of the
country. There are different modes of financing. The client asks for the financing along with
mentioning the mode of financing. Saudi Pak then analyzes the request and gives financing if it
seems suitable and if not then decision is made after the negotiation. There are different modes
of financing that are offered to different clients.

1.2.1 Long Term Financing

This is a type of financing which is provided for more than a year. This type of financing is
provided to the project which will give long term benefits. Saudi Pak provides fund to the clients
for expanding the operations, to support the working capital, construction projects on a big scale
and increasing the facilities.

1.2.2 Short Term Financing

This type of financing is also called working capital financing. This is a type of financing which
is provided for the management of working capital. The term of this type of financing is less than
a year. Saudi Pak provides this financing to the clients for the management of their working
capital, to put that money for the short term operations of the company.

1.2.3 Lease Financing

In this type of financing Saudi Pak gives asset to the client for which the client is in need. The
client uses the asset but ownership is in the hands of the Saudi Pak. Murahiba / Musharika: Both
if these are the Islamic modes of financing. Morahiba financing is a like short term and long term
financing and Musharika financing is like the equity financing in which Saudi Pak invests in the
equity of the company.

1.2.4 Direct Equity Financing

In this type of financing Saudi Pak invests in that company by directly purchasing the shares of
company and by purchasing shares of the company from the stock exchange. Portfolio
Management division invests in the shares of different companies. Saudi Pak has made two
categories for the investment in equity financing.

1.2.4.1 Held for Trade

The securities which are not held for long term, these securities are traded on short term basis.

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1.2.4.2 Available for Sale

These securities are held for a long term so that they are sold on high price to earn maximum
benefit.

1.2.5 Credit Lines of Financial Sector

Companies can get loan from financial institutions to a certain limit at any time and the amount
can be paid anytime and the interest is paid on the outstanding amount of the loan.

1.2.6 Investment in TFC

Financing in Term finance certificates is one of the products of Saudi Pak. Saudi Pak purchases
the TFC’s of the Clients thus providing it the required financing. These TFC’s have a maturity
period which is more than one year.

1.2.7 Underwriting and Guarantees

One of the functions of Saudi Pak is that it becomes the guarantor in some financing and it
becomes underwriter as well. In case of Guarantor Saudi Pak gives guarantee to the financer of
the client that it will repay the loan otherwise Saudi Pak will be responsible. For this Saudi Pak
earns its fee. In case of underwriter Saudi Pak helps the client in its Initial Public Offering. In
case if no one acquires the shares of the client then Saudi Pak will acquire the shares.

1.2.8 Participation in Syndicate Financing:

Syndicate financing is a mode of financing in which two or more financer provides financing to a
project in case that project requires a huge financing. One of the financer becomes the lead
financer and that lead financer makes all arrangement for providing financing to the clients.
Saudi Pak became the lead financer many times in syndicate financing.

(Saudi Pak, 2010)

Main Departments and their Operations in the Head office

There are total 13 departments in Saudi Pak Industrial and Agricultural Investment Company.

1.2.9 Information Technology Division

Information technology is a key indicator to the development of the company by managing it’s
infra structure and facilitating strategic initiatives for accelerating business growth. The

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information technology division is providing IT the facility to all the divisions. It has maintained
Management information System (MIS). This has smoothed the progress of all the division. In
case of any problem in the Network IT division resolves that problem immediately and the work
goes on without any delays.

1.2.10 Human Resource Division

Human resource is the most value able asset of Saudi Pak. The Company’s growth undoubtedly
depends on a transparent and proactive human resource strategy ensuring that professionals with
requisite skills and competencies are attracted to join the company and retained through fair and
equitable implementation of the policies. Human resource division keeps record of the
employee’s performance to check the skills and competencies of the employees.

1.2.11 General Sales and Building Division

General sales and building division keeps record of the office equipment that is used by different
department. In case there is a need of anything General sales and building division purchases it
and provides to the respective division.

1.2.12 Corporate Finance Division

Corporate finance division is playing the key role for Saudi Pak. As Saudi Pak provides
financing to different projects, corporate finance division is the first division that deals with the
finance requests. After receiving the request of financing any project corporate finance division
analyses the request. It carries out the economic analysis and respective industry analysis. After
that it carries out the company analyses and technical analysis whether the project is feasible.
Manager visits the site of the project. After all the analysis is done an appraisal report is made
which is the send to the related departments.

1.2.13 Portfolio Management Division

Portfolio management division makes direct equity financing. It purchases the shares of its
clients and earns profits. It first analyses the return of the project, if there is any return then Saudi
Pak purchases the shares. After purchasing the shares Saudi Pak either receives the dividend or it
sells those shares on high price to earn profit.

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1.2.14 Risk Management Division

In the light of guidelines issued by State Bank of Pakistan, Saudi Pak’s risk management division
is working. Saudi Pak attaches high importance to the involvement and use of technology to
make risk management function more efficient and productive. Recognizing the significance of
technological aspect, Saudi Pak is presently engaged in the automation of various function of
risk management. Corporate finance division sends the appraisal report to Risk Management
division, risk management division analyses the risk involved in the financing. Risk management
division deals with four types of risk: Credit risk, Operational risk, Market risk and liquidity risk.

1.2.15 Treasury Division

Treasury Division manages the mobilization of funds. It borrows money on short term basis and
long term basis for the requirement of the company. Treasury division arranges the fund for
providing financing other projects. It also maintains a balance of funds with Saudi Pak. In case of
any shortage of funds treasury division borrows money and in case of excess of funds treasury
division invests it further.

1.2.16 Credit Administration Division

The function of credit administration division is very much important. After the financing of any
project is approved, the work of credit administration starts which is to monitor the loan whether
the purpose of the loan is being fulfilled by the client or not. In case the client does not pay the
loan on time then credit administration division make the repayment schedule for further
payments.

1.2.17 Finance Division / Accounting Division:

This division keeps the record of all the transactions in Saudi Pak. Finance Division has
maintains the record of all the money borrowed and invested. This division makes all the reports.
The other divisions can access to those reports when required.

1.2.18 Information and Research Division

This division also has a role in facilitating the other divisions. Its role is to make software for the
other divisions so that the work can be done in minutes otherwise it would take a long time for
some tasks to performs. Information and research division puts formulae in that software and the
work is done easily.
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1.2.19 Internal Audit Division

This division also plays an important role in the Saudi Pak. It audits all the working of the
organization. All the reports are sent to internal audit division so that mistakes and fraud can be
checked.

1.2.20 Compliance Division

This division ensures that all the working of the organization is done according to the rules and
regulation of the State bank of Pakistan because if the organization does not comply according to
the rules and regulation of the State Bank of Pakistan then the organization can be penalized.

1.2.21 Law Division

While financing the projects Saudi Pak maintains some collateral against those finances. Law
division has the role while maintaining the collateral. Law division ensures that whether the
client is providing all the documents necessary and collateral being held is legal. (Annexure H)

(Saudi Pak, 2010)

11
 Chapter No 2

Learning and Personal Internship Experience

12
1st Week

My first week of internship was in Treasury Division. In Treasury division I first had gone
through the manual of the treasury division and the annual report of Saudi Pak Investment
Company. Treasury division borrows funds in case of shortfall in the funds and invests in case of
there is surplus of funds. I learned the operation of Treasury division. In Karachi office
borrowings are made by the dealers and deals are sent to the Head Office Treasury Division.
Some deals are also made from the Head Office as well. Borrowings are made through following
Instruments: Letter of Placement, repurchase agreements, certificate of Investments, swaps and
reverse repurchase agreements.

I learned the purpose and working of all those instruments and the calculation of the mark up and
price of the following instruments. Reverse repurchase agreements are the investment
instruments and the other three can also be used as the investment instruments.

Deals of different instruments are prepared in the treasury division through software (Fox Pro).
Manager of treasury division directed to make a deal though that software which enhanced my
knowledge practically. I assisted the manager in making the monthly progress report and
liquidity report of Saudi Pak Industrial and Agricultural Investment Company. I made the credit
rating report in which credit ratings of the different companies was to be put and the maximum
credit limit of those companies was given. This report was helpful in borrowing and making
investments.

(N. Hammad, Personal Communication, July 04, 2010)

2nd Week

In the second week I was scheduled to the Portfolio Management Division. In the Portfolio
Management Division I gone through the manual and learned the operations of the division. I
learned how to analyze the risk and return. Before purchasing any shares analysis of the
company should be conducted to check whether that company has growth potential. After
analyzing the company, risk and return should be analyzed. This risk and return analysis tells us
the expected return and risk on the investment.

Ratio analysis of Pace Barka Limited was worked out by me. Analysis is used to see whether
there is growth potential in the company or not. I worked out the Beta analysis in the Portfolio

13
Management division which shows us the relationship of market return and the individual
security return. Beta also shows the risk in any particular security.

In last day of the second week I was then scheduled to Risk Management Division. At the very
first day of Risk Management Division I gone through the manual and learned the operations of
the company.

(M. Faisal, Personal Communication, July 15,2010)

3rd Week

In the third week I was in the Risk Management Division. There are three types of risk that are
monitored in Risk management division. One of the risks is the credit risk in which two types of
risks are involved one of which is Obligor risk which is the risk of the client, whether that client
would be able to pay back the loan and the second one is facility risk which is the risk in the
mode of financing, whether the short term loan or the long term loan will adversely affect the
client or it will be beneficial for the project.

Then I learned operational risk which is the Risk in the operations of the business. The third risk
that is monitored in the Risk management division is market risk. VAR (value at risk) is
calculated to calculate the market risk. I learned how to calculate VAR. VAR is the risk on the
investment made on the shares of different companies. It shows the individual risk as well as the
risk on the whole portfolio.

Steps of VAR calculation are to first take the average of the return of the month for which you
want to calculate VAR, take the Standard deviation of the returns, multiply the average of return
with the days in year in stock market which are 245, multiply the standard deviation with the
Square root of the days in year, take the normal factor [NORMSINV (confidence level)] and
multiply the normal factor with the standard deviation of the return and the square root of
holding days. The result will be our required VAR.

Report on concentration ratios was worked out by me, these concentration ratios show how much
is the exposure in each sector and in each company. Then it shows how much are the NPL’s
(Non- performing loans). I got a good command on the Ms Excel while making those reports.

(A. Mahtab, Personal Communication, July 23, 2010)

14
4th Week

In 4th week I was scheduled to Corporate Finance division which is the main division in Saudi
Pak Industrial and Agricultural Investment Company. I went through the manual of the division
and learned the operations of the corporate finance division. Financing requests are analyzed in
this division. I learned how to analyze the financing and make appraisal report for the requested
project. First of all Economic analysis should be conducted in which GDP, the per capita income,
the interest rate and the growth in the GDP has to be checked, then the respective industry
analysis should be conducted in which current growth in the industry has to be worked out,
whether there will be future demand of the product in the industry, what is the sense of
competition in the industry and what are the potential growth chances in the Industry.

After economic and industry analysis is conducted then, company’s ratio analysis should be
conducted to check whether the purpose of the loan is correct, the project has potential growth
and client would be able to pay back in future or not. In the ratio Analysis check the liquidity
ratios, solvency ratios, profitability ratios and market ratios.

Liquidity ratios show whether the company would be able to meet working capital requirements.
Solvency ratios show whether the company would be able to pay back its long term loans or not.
Profitability ratios show the margin of cost and profit. Market ratio shows whether the market
value of the company will increase or decrease. This helps us to check whether the investment in
shares will give us benefit in shape of appreciation in the market value.

Technical analysis is worked out of the equipment and machinery of the client to check the
capacity of the company.

(P. Khalid, Personal Communication, August 01, 2010)

5th Week

My 5th week started in corporate finance division and ended in the credit administration division.
Ratio analysis of Medi Pak Company Private Ltd was conducted by me during internship in the
corporate finance division. It gave me the practical experience of how analysis is conducted of
different companies. After I had done the analysis the AVP (Assistant Vice President) checked
that analysis and corrected me which gave me the opportunity to learn from the practical point of
view. I learned how to analyze the cash flow statement. Cash flow statement analysis is

15
conducted to check the cash investments made in the different operations of the business and
how much received in cash from operations of business.

After the Corporate Finance Division I was in the Credit Administration Division the function of
which is to monitor the loans. When the request is approved by the credit and investment
committee then financing is made to the project. After, the financing is made to the project then
work of credit administration starts properly. I learned how credit administration division
monitors the financing.

(H. Abid, Personal Communication, August 05, 2010)

6th Week
The last week of internship was in credit administration division. In the last week when I had
knowhow of operations of the credit administration division I learned how to make repayment
schedule. The credit administration division visits the project on yearly and half yearly basis so
to see whether the purpose of the financing is being fulfilled or not. The manager along with
assistant manager visits the Credit administration division. In the visit they check out the
feasibility of the project, their management and whether the purpose of the financing to project is
being fulfilled or not. In credit administration division I checked the full credit reports of
different companies like Sitara developers and berger paints etc. and discussed those reports with
the Vice President of Credit Administration division. The discussion with the vice president of
CAD was very much beneficial and full of knowledge. During that discussion they discussed
their experiences with me, which gave me much knowledge and insight of the operations of
credit administration division.

(Aftab, Personal Communication, August 05, 2010)

16
 Chapter No 3

Performance Analysis of the Company

17
3.1 SWOT Analysis
Strengths

Saudi Pak Industrial and Agricultural Investment Company is the joint venture between the
Government of Pakistan and the Government of Saudi Arabia. This company was established for
the development of the country, so this Company has the backing of both the Governments.

Weakness

Govt. Inefficiencies

Being a joint venture of Government of Saudi Arabia and Pakistan it has operational weaknesses
like the other Govt. organizations.

Low Morale of Employees

The employees of the organization have low morale and they are less motivated to their job.

Opportunities

Potential Growth in Construction Companies

After the flood in Pakistan different Companies related to construction will need financing to
cope with the increasing demand. Those construction companies will contact DFI’s like Saudi
Pak for those financing. This will be a good opportunity for Saudi Pak.

Threats

Competition

There are many joint ventures like (Pak China Investment company, Pak Oman Investment
Company, Pak Libya Investment Company and some of the bank that are performing the role of
investment company) are in the competition of Saudi Pak investment Company. These
companies are threat to Saudi Pak.

Increased Inflation

Recently there has been an increase in the interest rate by the State bank of Pakistan that would
result in the decline in the investments. The profits of Saudi Pak would be affected by the cut
down of volume.

18
PEST Analysis

Political Factors

Political Uncertainty

There is lot of gossip going on about the anarchy in the government of Pakistan. There is an
uncertain situation in the country which does not allow the investors to start any venture. This
will affect the Investment companies like Saudi Pak.

Change of one of the Governments

Saudi Pak is the joint venture between Saudi Arabia and Pakistan, any change in the
governments of both the countries will affect the operations of the company. If there is a change
in the government of Pakistan then the new government will change the regulations prevailing in
the country for the DFI’s then operations of the Saudi Pak will change and same will happen if
there is a change in the government of Saudi Arabia.

Economical Factors

Potential Financing Need

After the flood in Pakistan different Companies related to construction will need financing to
cope with the increasing demand. The economic condition of the country will improve. By the
improvement in the economic conditions the industries of the country will improve, the
industries will require financing. Companies will contact DFI’s like Saudi Pak for those
financing. This will be a good opportunity for Saudi Pak.

Inflation

The increasing trend in inflation and interest rate shows the adverse results in the economy.
Hyper inflation has increased the interest rate, due to this investment in the economy of Pakistan
has shown a decline as compared to previous years.

Crumbling Stock Market

Stock market has crumbled, due to this Saudi Pak has also been affected. Any other changes in
the stock market will affect the operation of portfolio management division of Saudi Pak.

19
 Social Factor

Saudi Arabia and Pakistan both are the Islamic States, social values of both the countries are
almost the same. There are not some significant social factors that affect Saudi Pak. People of
Pakistan are adopting the western culture so the values and norms of our country are changing.
The change in the values and norms of the country will change the behaviors of the employees of
Saudi Pak and thus the Saudi Pak will be affected but that change will come slowly and in the
long run.

Technological Factors

Technology is dynamic; it has eased us a lot in the consumer as well as commercial life. In Saudi
Pak Information Technology division is playing a key role. By the change in technology internal
operation of Saudi Pak will be relieved. By the introduction of the new technology industries will
grow and they will contact companies like Saudi Pak for financing. The change in the technology
will change the whole operations of Saudi Pak because most of the work is done through the help
of computers.

20
 Analysis

Balance Sheet

Balance Sheet of Saudi Pak Agricultural and Industrial Development Company shows that there
has been a decline of 15% in the current assets in FY 2009 and FY 2008 as compared to the FY
2007. This decrease is due to the decline in the investments and advances. This decline is due to
the break down in the economy of Pakistan. The overall project financing in the economy of
Pakistan declined. Saudi Pak was also affected, as a result the investments and advances of the
Saudi Pak declined. Operating fixed assets remained same which shows that there had not been
any investments in Saudi Pak.

Current Liabilities also decreased by 13% which is because there was no need of the financing in
the projects. Current assets decreased and as a result current liabilities were deliberately
decreased. Other liabilities also declined which consisted of the interest on the liabilities. As the
liabilities decreased so the interest on those liabilities also decreased. Total liabilities declined by
15% in FY 2008 and FY 2009 as compared to FY 2007 (Annexure C, E)

Profit and Loss Account

Interest income has increased by 49% in FY 2008 and FY 2009 as compared to FY 2007, which
was due to the increase in spread and yield in FY 2008 and FY 2009. This shows the company’s
efficiency in managing the cost and return on capital. Total non-interest income increased in FY
2008 and then decreased in FY 2009 which was due to the decline in the income from foreign
currencies. Income from foreign currencies increased in FY 2008 and then decreased in FY 2009
by 110%. Swap deals are the cause of loss. Company should not deal in derivative securities
because there is no skilled management available to manage the derivative securities. The major
change in the Profit and Loss Account was due to the change in the income from foreign
currencies. (Annexure D, F)

Ratio Analysis

Interest sensitivity ratio is 1.70 in FY 2009 as compared to FY 2008 which was 1.50 which
shows that company has more assets than liabilities and its has good. Liquidity of the company
increased in FY 2009 which shows that company is able to pay its short term obligations easily.
The performance of Saudi Pak was fine in FY 2008 as compared to FY 2007 and FY 2009.

21
Return on assets in FY 2008 was 20.83% but decreased in FY 2009 which was 1.91%. Return on
equity was 51.29% in FY 2008 and was decreased in FY 2009 which was 4.02%. This shows
that the performance of Saudi Pak was poor in FY 2009 as compared to FY 2008 which is due to
the external factors. Bad economy has adversely affected the company and the adverse
conditions of the other companies has also affected the company, non performing loans increased
due to bad economic conditions and company suffered a loss which decreased the performance
of the company. Most of the loan was provided to the Dewan group of companies and this group
defaulted due to family problems. Due to the default of this group Saudipak suffered a loss.
Spread and Yield on assets was increased in FY 2008 and FY 2009 which was also indicated in
increase in the net interest income. Increase in spread is calculated to check the profitability of
the company. Increased markup shows the efficiency of the company in collecting deposits at
low cost and providing loan at high profit.

Solvency of the company was decreased in the FY 2008 and FY 2009. The company will be in
difficulty while paying its long term debt. The debt to equity ratio and debt to asset ratio
decreased in FY 2009 as compared to previous years which shows that solvency of the company
has been adversely affected. Efficiency of the company is below 55% which shows that company
is efficiently managing its assets and liabilities. This diminishing solvency of the company is due
to the non performing loans which adversely affected the asset base of the company.

Market ratios have decreased in FY 2009 which shows that market value of the company has
decreased, earning per share and book value per share has decreased. It is expected that the share
price of the company will decrease in the coming year. The good performance of the company in
FY 2008 can be seen by the market ratios in FY 2008 which is the main reason for its increased
share price. (Annexure G)

22
 Chapter No 4

Conclusion and Recommendations

23
Conclusion

Saudi Pak Industrial and Agricultural Investment Company is the joint venture of Kingdom of
Saudi Arabia and Government of Pakistan. My internship in Saudi Pak has enhanced my
knowledge, now I know how different organizations work and how different departments operate
in collaboration with each other. This internship experience has given me practical exposure
because of which my confidence has increased. I can now express myself in front of others
easily. I learned a lot during my internship in Saudi Pak. I learned how time is managed at the
organizational level and now I am able to manage my time easily.

I saw how the employees were being managed by the presidents and the managers as a result of
which my managerial skills have been polished. Internship experience has given me motivation
to work in the practical life. I have made some reports during my internship which has increased
my knowledge about Ms Office and Ms Excel.

24
Recommendations

Saudi Pak Industrial and Agricultural Investment Company is the joint venture of Kingdom of
Saudi Arabia and the Government of Pakistan. It has all the operational deficiencies of a
Government organization. The human resource department was not working properly. The
employees were not motivated. They were not using all the skills and expertise while doing their
work. Inflation in rising in Pakistan which has increased the rates of all the things due to which
people have to spend more to get their necessities. Employees need a high pay because of this
rising inflation but their salaries are not being increased. During my internship employees made
a strike for the increase in their salaries. The Salaries of the employees should be increased so
that the employees may work with motivation and devotion.

There is no performance appraisal system in the organization due to which no one bothers to use
his skills and expertise during their job. If there would be performance appraisal system then all
the employees will be working at their full capacity and the performance of the organization will
increase.

The loans should be monitored with more efficient manner because there were some non
performing loans prevailing in that organization that has caused much problem for whole the
organization. Those NPL’s (non-performing loans has caused the liquidity problem for the
organization.

25
 Annexure

Annexure - A

Management Structure

Chairman Mr. Muhammad AL-Harbi

Deputy Chairman Rana Assad Amin

Board of Directors

Saudi Nominees

Mr. Muhammad AL-Harbi

Mr. Musaad A. AL-Fakhri

Mr. Muhammad AL-Jarbou

Pakistani Nominees

Rana Assad Amin

Mr. Abdul Ghaffar Soomro

Mr. Yawar Zia

Chief Executive / Manager Director Mr. Muhammad Rashid Zahir

26
Annexure - B
List of Abbreviations

AVP Assistant Vice President

VP Vice President
AM Assistant Manager
MD Managing Director
TD Treasury Division
CFD Corporate Finance Division
RMD Risk Management Division
CAD Credit Administration Division
HFT Held for Trade
AFS Available for Sale
BMR Balancing and Modernization Replacement
NPL Non Performing Loan

27
Annexure - C
Balance Sheet

(Saudi Pak annual report, 2009)

28
 Annexure - D
Profit and Loss Account

(Saudi Pak annual report, 2009)

29
Annexure - E
Balance Sheet

FINANCIAL YEAR FY 2009 FY 2008 FY 2007

ASSETS
Cash & Bank Balances 44,578,637 24,784,571 510,716,663
Balances
Lending towith other Banks
financial institutions 2,538,195,884
2,083,870,748 1,302,616,846
1,335,000,000 1,969,783,920
1,995,000,000
Investments 7,403,286,526 8,602,574,102 9,907,620,181
Deffered tax assets 129,962,515 117,296,940

Advances, Prepayments and other receivables

Advances 5,609,524,360 6,304,576,549 6,745,631,076
CURRENT ASSETS 17,809,418,670 17,686,849,008 21,128,751,840
Operating Fixed Assets 2,282,313,203 2,369,626,607 2,432,780,209

FIXED ASSETS 2,282,313,203 2,369,626,607 2,432,780,209

Other Assets 1,119,387,316 1,077,129,665 1,456,290,792
TOTAL ASSETS 21,211,119,189 21,133,605,280 25,017,822,841

LIABILITIES AND EQUITY

Short-term Borrowings 4,400,083,810 6,784,303,772 4,791,760,000
Borrowings (COI) 2,635,847,714 1,420,000,000 4,226,536,436
Other Liabilities 178,855,967 121,049,440 187,767,824
CURRENT LIABILITIES 7,214,787,491 8,325,353,212 9,206,064,260
Long-term Borrowings 3,760,574,290 4,059,138,895 5,150,735,956
Other Liabilities 85,164,099 73,215,469 101,671,067
Defferred Liabilities 71,645,385 80,563,586 77,531,738
LONG-TERM DEBT 3,917,383,774 4,212,917,950 5,329,938,761
Deffered Tax Liabilities 383,695,120
TOTAL LIABILITIES 11,132,171,265 12,538,271,162 14,919,698,141
Issued, Subscribed & Paid up Capital 6,000,000,000 5,000,000,000 4,000,000,000
Reserves 2,520,383,519 2,405,924,590 3,005,331,746
Accumulated Loss (528,064,364) (918,583,349)
Deficit on revaluation of securities - net of tax (25,451,367) (89,311,430) 810,264,478
Surplus on revaluation of operating fixed assets - net of 2,112,080,136 2,197,304,307 2,282,528,476
tax
EQUITY 10,078,947,924 8,595,334,118 10,098,124,700
TOTAL LIABILITIES AND EQUITY 21,211,119,189 21,133,605,280 25,017,822,841

30
Annexure - F
PROFIT & LOSS ACCOUNT
FINANCIAL YEAR FY 2009 FY 2008 FY 2007
Markup/Return/Interest Earned 1,870,369,880 1,946,874,073 1,300,002,377
Markup/Return/Interest Expensed (1,428,082,033) (1,711,055,897) (1,304,676,888)
Net Markup/Return/Interest Income/Expense 442,287,847 235,818,176 (4,674,511)
Provision against non performing loans and (180,632,276) (603,300,550) (448,043,068)
advances
Provision for diminution in the value of (367,508,960) (34,118,441) (16,920,026)
investments
Bad debts written off directly (23,500,000) (5,700,775)
Net Markup/Return/Interest Income/Expense (129,353,389) (407,301,590) (469,637,605)
after provisions
NON MARKUP/RETURN/INTEREST
INCOME
Gain on dealing in quoted securities 599,596,982 6,279,756,610 586,076,750
Loss/Gain on dealing in mutual funds 72,731,031 (38,140,615) 74,668,779
Gain on dealing in Government Securities 237,013
Income/Loss from dealing in foreign (61,542,009) 559,775,400 (45,021,236)
currencies
Dividend Income 74,826,797 107,424,208 104,366,740
Unrealized loss on revaluation of investment (3,569,223) (1,843,015) (61,376,705)
classified as held for trading
Other Income 48,769,899 43,123,640 18,717,856
Total non markup/return/interest Income 730,813,477 6,950,333,241 677,432,184
NON MARKUP/RETURN/INTEREST
EXPENSES
Administrative expenses (196,267,378) (184,006,388) (155,145,928)
Impairment loss on quoted securities (1,903,811,179)
Other provisions/ Write offs (256,792)
Other charges for divestment of subsidiary (46,565,943) (17,943,484)
Total non markup/return/interest expenses (196,267,378) (2,134,383,510) (173,346,204)
PROFIT/ (LOSS) BEFORE TAX 405,192,710 4,408,648,141 34,448,375
Taxation 13,711,384 17,965,644 19,905,126
PROFIT/ (LOSS) AFTER TAX 418,904,094 4,426,613,785 54,353,501

31
 Annexure - G
RATIO ANALYSIS
Interest Sensitivity Ratio 1.70 1.50 1.56
Cash Ratio 0.01 0.00 0.06
PBT / Assets (ROA) 1.91% 20.86% 0.14%
PBT / Equity, (ROE) 4.02% 51.29% 0.34%
PBT / Sales (Profit margin) 21.66% 226.45% 2.65%
Yield on assets 10% 10% 6%
Net Interest Margin 2% 1% 0%
Spread 23% 24% 15%
Efficiency Ratio -17% -30% -26%
Liabilities / Equity 1.10 1.46 1.48
Long-term Debt / Equity 0.39 0.49 0.53
Total Debt / Total Assets 0.52 0.59 0.60
Book Value per Share 16.80 17.19 25.25
Earnings per Share 0.70 8.85 0.14

32
Annexure - H
Organogram

33
References
Wikipedia webpage, Data retrieved on December 04, 2010,
from http://en.wikipedia.org/wiki/Investment_banking
Saudi Pak industrial and agricultural investment company official website, Data retrieved on
October 05, 2010, from http://saudipak.com/corporate_profile.php
Saudi Pak industrial and agricultural investment company official website, Data retrieved on
October 05, 2010, from http://saudipak.com/affiliates.php
Saudi Pak industrial and agricultural investment company official website, Data retrieved on
October 05, 2010, from http://saudipak.com/milestones.php
Saudi Pak industrial and agricultural investment company official website, Data retrieved on
October 05, 2010, from http://saudipak.com/corporate_objectives.php
Saudi Pak industrial and agricultural investment company official website, Data retrieved on
October 05, 2010, from http://saudipak.com/saudipak.php
Saudi Pak industrial and agricultural investment company official website, Data retrieved on
October 05, 2010, from http://saudipak.com/products_services.php
Saudi Pak industrial and agricultural investment company official website, Data retrieved on
October 05, 2010, from http://saudipak.com/board_directors.php
Saudi Pak industrial and agricultural investment company official website, Data retrieved on
October 05, 2010, from http://saudipak.com/balance_sheet.php
Saudi Pak industrial and agricultural investment company official website, Data retrieved on
October 05, 2010, from http://saudipak.com/profit_loss.php

34