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The Pakistan Credit Rating Agency Limited

Date
11-Nov-2016
Analysts
Amara Gondal
amara.gondal@pacra.com

Muneeb Rashid
muneeb.rashid@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 15) [View]
Disclaimer
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PACRA Maintains Entity Ratings of Fatima Fert Limited (Formerly DH Fertilizers Limited)
 Rating Type Entity
Current
(11-Nov-2016)
Previous
(13-Nov-2015)
 Action Maintain Maintain
 Long Term A- A-
 Short Term A2 A2
 Outlook Stable Stable
 Rating Watch - -

The ratings of Fatima Fert reflect the strength of its sponsor - Fatima Fertilizer Limited - offering dynamic business acumen and strong financial flexibility. The incumbent sponsors ensured sustained availability of gas supply of RLNG through SNGPL network. The plant has been operational at above 100% capacity, beginning March-16. This is an interim arrangement; the risk of operations halting is still present. Recently, working capital requirement has surged, financed through short term borrowing; in line with industry due to supply surplus situation with inventory pileup. The pending risk needs immediate attention of all stakeholders. Another risk is reduced international pricing, a significant threat to current profits. The entire debt profile of Fatima Fert has changed; grace period of 2 years provided fiscal room to the company, while alleviating pending pressure on the financial risk profile of the company. The loan has a corporate guarantee of Fatima, reflecting sponsor's back to the company.

The ratings are dependent on permanent resolution of gas issues (a vital raw material) facing Fatima Fert core operations through a long term arrangement. Meanwhile, any significant decline in coverages or deterioration in the perceived group's ability to manage its financial profile would be negative.
About the Entity
Fatima Fert is a wholly owned subsidiary of Fatima Fertilizer Limited (Fatima). Fatima Fert manufactures and markets urea under the brand name " Bubber Sher". The plant, located in the vicinity of Lahore, has the nameplate capacity of 445,000MT per annum. Fatima is a joint venture between two major business groups in Pakistan; Fatima Group - (45%), Arif Habib Group (31%) and Fazal Group (15%). Fatima Fertilizer is a fertilizer complex. In addition, the group owns Pakarab Fertilizers Limited and Fatima Fert. It also has interests in textile, sugar and energy sectors.

Fatima Fert's board comprises six memebers; two representing Arif Habib, three from Mukhtar Family, and one employee of Fatima Group. The board is aligned to the board of Fatima Fertilizer Limited. The chairman of Arif Habib, Mr. Arif Habib, an eminent businessman and a successful entrepreneur, chairs the company's board. Fatima's current management has been entrusted with additional charge of Fatima Fert Limited. Therefore CEO of Fatima, Mr. Fawad Ahmed Mukhtar, a sesaoned entrepreneur, is also CEO of Fatima Fert.
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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