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The Pakistan Credit Rating Agency Limited

Date
12-Oct-2017
Analysts
Jhangeer Hanif
jhangeer@pacra.com

Faraan Taimoor
faraan.taimoor@pacra.com

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

  • Debt Instruments Rating Methodology (Jun 17) [View]
  • Corporate Rating Methodology (Jul 17) [View]
  • Correlation between long-term and short-term rating scale (Jun 17) [View]

Related Research

  • Sector Study | Fertilizer (Oct 16) [View]
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PACRA Assigns Entity & TFC Ratings to Pakarab Fertilizers Limited
 Rating Type Entity Debt Instrument
Current
(12-Oct-2017)
Current
(12-Oct-2017)
 Action Initial Initial
 Long Term A- A-
 Short Term A2
 -
 Outlook Stable Stable
 Rating Watch - -

The ratings reflect the strength of the ownership structure of Pakarab: Arif Habib Group and Fatima Group. This strength has been demonstrated in the past both in terms of ongoing support and at the times of stress. The company has a sizeable loan from sponsors, considered as quasi equity. The company’s operations were facing challenge due to gas shortage in the country. RLNG provided requisite support and now the company is getting natural gas from the system as well (~35%). The company has a diverse product mix with the ability to make best use of available raw material. The urea industry is facing surplus and the product prices have also come down from historical highs. Pakarab is distinctly placed in this context, given its product mix having a lower proportion of urea. The challenge, nevertheless, remains to offload the products. Margins have come down; but the reduced LNG price is providing cushion. The financial sustainability of the company still drives from stability in operations, continued sponsor support and timely recovery of stuck-up receivables.

The ratings are dependent on the sustained risk profile of the company, seamless financial discipline in the wake of upcoming debt repayments. For this, continuity of profitable operations is crucial.
About the Entity
Pakarab Fertilizer Limited is owned by a consortium between two major business groups in Pakistan namely Fatima Group and Arif Habib Group. Arif Habib Group ranks amongst the prominent financial services group in Pakistan and holds interests in the securities brokerage, investment and financial advisory, investment management, commercial banking, commodities, and private equity, cement and fertilizer industries. Fatima Group is one of the leading corporate groups in Pakistan, engaged in trading of commodities, manufacturing of fertilizers, textiles, sugar, mining and energy. Pakarab's plant is located in Multan with a total capacity of 855K MTPA whereas the company's head office is situated in Lahore.

The board comprises eight members; equally represented through Arif Habib and Fatima Group. Mr. Fawad Ahmed Mukhtar is the Chief Executive Officer of the Company. He possesses vast business acumen spanning over three decades and has been associated with the company since 2005.

About the Instrument
Pakarab has a privately placed term finance certificates (PPTFC) of PKR 450mln, issued in May-16 with a tenor of five years. The PPTFC would be payable at 6M KIBOR plus 1.90% per annum. Payments would be payable in six equal installments with the first payment falling at the end of 30th month (30th December 2018) from the first disbursement date (30th June 2016) and subsequently every six months afterwards till June 2021.
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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