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The Pakistan Credit Rating Agency Limited

Date
08-Aug-2017
Analysts
Jhangeer Hanif
jhangeer@pacra.com

Sanna Khan
sanna.khan@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]

Related Research

  • Sector Study | Fertilizer (Oct 16) [View]
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PACRA Maintains Ratings of Fatima Fertilizer Company Limited
 Rating Type Entity Debt Instrument
Current
(08-Aug-2017-)
Previous
(11-Nov-2016)
Current
(08-Aug-2017)
Previous
(26-Jan-2017)
 Action Maintain Maintain Maintain Initial
 Long Term AA- AA- AA- AA-
 Short Term A1+ A1+
 - -
 Outlook Stable Stable Stable Stable
 Rating Watch - - - -

The ratings reflect strong business profile of the company on the back of diversified product mix. Secure supply of gas from Mari field together with lower feed stock price (under fertilizer policy – 2001 up till July’2021), represents inherent strengths of the company compared to peers. Overall capacity utilization continued to exceed 100% (previously: 90% - 98%) based on ammonia debottlenecking. Efficiency in fuel consumption was also achieved with the installation of Waste Gas Boiler in April’16. Gross margins are healthy, with the uptick in off takes post subsidy announcement. The company faces competition from peers amidst supply surplus situation in the country, mainly on the back of improved gas situation in the country; experiencing huge inventory pile up of urea. The pending risk is being managed through allowing exports. Another risk is reduced international pricing, a significant threat to current profits. Fatima’s carry over inventories and working capital needs pushed up short term borrowings, rationalized towards Dec 2016. This restricted the incremental benefit on leveraging enabled by retirement of long term borrowings. The ratings are dependent on the company's ability to maintain its cash flows.
About the Entity
Fatima Fertilizer, listed on Pakistan Stock Exchange, is owned by Fatima Group (45%) and Arif Habib Group (31%). Fatima Group retains management control of the company. Fatima owns a fertilizer complex with nameplate capacity of 1.28mln MT p.a, located at Mukhtar Garh, Rahim Yar Khan. In addition the group owns Pakarab Fertilizers Limited and Fatima Fert. It also has interests in textile, sugar, mining and energy sectors.
Fatima's BoDs comprises eight members, including the CEO. The chairman of Arif Habib Group, Mr. Arif Habib, an eminent businessman and a successful entrepreneur, chairs the company's board. Mr. Fawad Ahmed Mukhtar, a seasoned entrepreneur, is the CEO of Fatima Fertilizer as well as of Pak Arab and Fatima Fert. The CEO is supported by a team of experienced professionals.


About the Instrument
Fatima has a listed, rated and secured Sukuk of PKR 10.5bln, which has a tenor of 5 years. Redemption of the Sukuk is in 10 semi-annual installments and coupon payments are payable @6MK+1.10%.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.
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