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The Pakistan Credit Rating Agency Limited

Date
22-Dec-2016
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Usama Liaquat
usama.liaquat@pacra.com

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

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

Related Research

  • Sector Study | Holding Companies (May 16) [View]
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PACRA Maintains Ratings of Engro Corporation Limited
 Rating Type Entity Debt Instrument
Current
(22-Dec-2016)
Previous
(22-Dec-2016)
Current
(22-Dec-2016)
Previous
(22-Dec-2016)
 Action Maintain Maintain Maintain Maintain
 Long Term AA AA AA+ AA+
 Short Term A1+ A1+
 Outlook Stable Stable Stable Stable
 Rating Watch - - - -

The ratings reflect the sustained risk profile of holding company. As a holdco, ECL has a diverse pool of investment: core as well as strategic under the umbrella of its three strategic pillars i.e. fertilizer, consumer goods and energy. Mostly, ECL’s investment book is characterized by companies having intensive engineering and mechanical setup. Hence, the group envisage sizable expansion in the energy sector. Efert is stabilized though it faces challenges emanating from international price parity and smooth offloading of its main product. ECL has generated sizeable cash from divestment of Efert and Efoods hence future investment avenue would play a crucial role in its overall risk profiling. With focused and intensive efforts, ECL has been successful in overcoming challenges faced by polymer business. ECL has benefited from its LNG venture which continued bearing fruits for the company. Vopak is a sustained cash producer. The ratings draw comfort from Engro Corp's well articulated mandate, which, in a structured manner, targets development of a central pool of executive management, a focused strategy setting and capital allocation function, and nurturing of governance framework.

Partnership with the foreign international player in the food business is expected to bring advantages to the group. The ratings remain dependent upon the company's ability to uphold the robust monitoring mechanism aimed at providing holistic direction to all subsidiaries while maintaining a strong control environment. Sustainability in the performance of subsidiaries alongwith effective management of financial profile on a group-wide basis remains important.
About the Entity
ECL is listed on Pakistan stock exchanges. Dawood Group -DG (Dawood Family and other associated concerns) holds major stake (~45%) in ECL. Engro’s BoD includes one executive director, two independent directors and six non-executive directors. The chairman of the board is Mr. Hussain Dawood, a well-known entrepreneurial veteran.

Mr. Khalid S. Subhani was succeeded by Mr. Ghias Khan beginning December 2016. Prior to taking over as CEO of ECL, he was CEO of Inbox Technologies - a subsidiary of DH Corp. Mr. Ghias holds an MBA degree from IBA, Karachi and has been associated with the group for over fifteen years.

About the Instrument
The Sukuk (PKR4,000mln), issued in Jul-14 has two tranches; a) a tenor of 3 years (PKR3,000mln) maturity in July-17 and b) a tenor of 5 years (PKR1,000mln) maturity in July-19. The profit rates on the tranches are 13% and 13.5% respectively which is paid semi-annually. Principal repayment will be at the end of the tenor or early through put option available to Sukuk holders.
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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