The Pakistan Credit Rating Agency (PACRA) has assigned "AA" (Double A) rating to the proposed, privately placed and secured short term Sukuk Issue of PKR 2,000mln by Engro Fertilizers Limited (EFL). The rating denotes a very low expectation of credit risk emanating from a very strong capacity for timely payments of financial commitments.
The rating reflects EFL's relatively low business risk emanating from a stable urea demand amidst continuing domestic supply deficit, despite capacity expansion. The dynamics of domestic urea market - supply deficit and significant gap from international prices - and EFL's diverse production plants coupled with sizeable system share has enabled the company to offset production losses - an outcome of gas shortage - through price raise. This has ensured that the profitability of the company remains intact. The rating recognizes EFL's ability to manage its financial profile, though stretched as a result of sizeable upcoming maturities. Herein, demonstrated cashflows largely mitigate the associated risk. Meanwhile, EFL continues to derive strength from association with Engro Corporation - a corporate conglomerate.
The instrument rating also incorporates strength of the security structure, reflecting 20% margin over the issue amount on current assets of the company and shorter maturity horizon of the instrument.
About the Sukuk issue
EFL is in the process of issuing short term Sukuk of PKR 2,000mln (including green shoe option of PKR 1,000mln), with a tenor of 6 months, carrying profit rate of 6month KIBOR plus 1.60%. The principal repayment will commence from 4th month from the issue date, 25% in two months each and 50% at maturity. The Sukuk is secured by first pari passu charge on all stocks, raw materials, packaging material, finished goods, stock in trade and book debts. Total security will be 120% of the issue amount.
About the company
EFL is a wholly owned subsidiary of Engro Corporation Limited, which in turn is majority (48%) owned by Dawood Group. The core business of EFL is manufacturing and marketing of fertilizers. EFL's base urea plant has a capacity of 975,000MT p.a. EFL's new urea plant of 1,300,000MT p.a., the country's largest ammonia-urea plant, has commenced commercial production since June-11.
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 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 securitys market price or suitability for a particular investor.
Analyst
Amara Gondal
(+92-42-35869504)
amara.gondal@pacra.com
www.pacra.com
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© Press Release 2012
