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The Pakistan Credit Rating Agency Limited

Date
17-Dec-2016
Analysts
Saira Rizwan
saira.rizwan@pacra.com

Rida Zahoor
rida.zahoor@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 Fibers
 Rating Type Entity
Current
(17-Dec-2016)
Previous
(17-Dec-2016)
 Action  Maintain
 Long Term  AA-
 Short Term  A1+
 Outlook  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, and (ii) leading market position (market share: 62%) in the local polyester staple fibre (PSF) industry. The subdued crude oil prices, and hence, PSF feedstock prices, the company’s core margins remained low. However, improvement has been witnessed post 2QFY16. Comfort is drawn from a reliable dividend stream of IFL's investment in Allied Bank Limited - an associated company. This has uplifted the company's financial risk profile. At the same time, imposition of anti-dumping duty (Oct15) on PSF imported from China is likely to provide relief to margins, in turn coverages, going forward.

The ratings are dependent on i) continued financial support from sponsors till improvement in stand-alone performance of entity, and ii) regular dividend inflows to support coverages. Moreover, induction of independent board members may improve governance framework.

In order to formalize its corporate structure, sponsors of Ibrahim Group contemplate to establish a holding company in the medium term. The new structure envisages consolidation of investments in IFL and Allied Bank at holdco level, thus changing ownership and investment structure of investee companies. This is likely to be in place after obtaining all relevant regulatory approvals. Upon completion of on-going process, IFL’s ratings may be reviewed to align it with the proposed structure.
About the Entity
IFL, incorporated in 1986 and listed on Karachi and Lahore stock exchanges, 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 137,856 spindles for Yarn. The company envisages building a sizeable spinning complex in the long-term. IFL holds ~17% stake in associated company - Allied Bank Limited, the fifth largest bank of Pakistan. 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; two non-executive IG affiliates, and one independent member. One position is currently vacant. 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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