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The Pakistan Credit Rating Agency Limited

Date
23-Jun-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Haider Imran
haider.imran@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 | Polyester (Dec 16) [View]
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PACRA Maintains Entity Ratings of Ibrahim Fibres
 Rating Type Entity
Current
(23-Jun-2017)
Previous
(17-Dec-2016)
 Action Maintain Maintain
 Long Term AA- AA-
 Short Term A1+ A1+
 Outlook Stable Stable
 Rating Watch - -

The ratings reflect IFL’s (i) strong ownership profile demonstrated through continued financial support by sponsor – Ibrahim Group (IG), having predominant shareholding in the company, (ii) leading market position in the local polyester staple fibre (PSF) industry, and (iii) intentions to keep leveraging at low levels. A recovery in crude oil prices, and hence, PSF feedstock prices, has led the increase in the company’s core margins. At the same time, imposition of anti-dumping duty in Feb’16 on PSF imported from China has provided relief to business margins in the subsequent quarters. In recent years, the company’s bottomline has been a function of a reliable dividend stream of IFL's investment in Allied Bank Limited (ABL), an associated company. Lately, the said investment has been sold to group holding company. Though the recurring stream of income from ABL would stop, improved core profitability as well as sizeable generation of cash from the sale transaction would bode well for debt repayments and, in turn, financial profile.

The ratings are dependent on profitable operations of the company, supported by input prices and duty protection. Moreover, association with Ibrahim Group bodes well for the company. Going forward, induction of independent board members should support improve governance framework.

In order to formalize its corporate structure, sponsors of Ibrahim Group established a holding company – Ibrahim Holdings (Private) Limited (IHL). The new structure envisages consolidation of investments in IFL and ABL at holdco level, thus changing ownership and investment structure of investee companies. ABL’s ownership has been restructured as per plan, with IFL’s investment of ~PKR 14bln (at end-Sep16) in the company completely transferred to IHL. Restructuring of the group’s investment in IFL (currently via individuals) will follow. Nevertheless, sponsors remain committed to support IFL if need arises; the holdco structure should provide a convenient mechanism.
About the Entity
IFL, incorporated in 1986 and listed on Pakistan Stock Exchange, is engaged in the production & marketing of PSF and yarn. The production facilities are located at Shahkot near Faisalabad; these facilities include current annual production capacity of 390,600 tons for PSF and 134,496 spindles for Yarn. The company envisages building a sizeable spinning complex in the long-term. Ibrahim Group holds majority stake (88%) in IFL through sponsoring individuals.

IFL's board of directors comprises seven members, including the CEO, Mr. Mohammad Naeem Mukhtar. In addition to the CEO, there are two directors from the sponsoring family, three IG affiliates, and one independent member. All board members have significant industry related experience.
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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