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Karachi, VIS Credit Rating Company Limited has recently assigned a preliminary rating of ‘A-1’ (‘A-One’) to the Short-term Sukuk instrument issued by Agha Steel Industries Limited (ASIL). This rating signifies a high certainty of timely payment, bolstered by excellent liquidity factors and solid fundamental protection. Despite minor risk factors, this rating positions ASIL favorably in the financial market.
According to VIS Credit Rating Company Limited, Agha Steel Industries Limited, established in Pakistan as a private limited company in November 2013, transitioned to a public limited company in April 2015. ASIL, known for its production and sale of steel bars, wire rods, and billets, has its registered office and manufacturing facilities in Port Qasim Authority, Karachi. The company marked its entry into the Pakistan Stock Exchange with an IPO in November 2020, indicating its growth trajectory and market presence.
The new rating comes as ASIL proposes a PKR 2.0 billion short-term sukuk with a tenure of up to 6 months from issuance. The profit rate of this instrument will be based on 6M KIBOR plus a spread, which is yet to be finalized. The principal amount is scheduled for a bullet payment upon the sukuk’s maturity. Notably, the Sukuk is secured by a ranking charge on ASIL’s present and future fixed assets, ensuring a 25% margin.
VIS’s assigned ratings take into account the high business risk profile within the long steel industry, characterized by cyclicality and intense competition. However, ASIL’s technological advancements, including the implementation of the Electric Arc Furnace (EAF) and Mi. Da. Rolling project, bolster its operational strengths, providing a level of support against these industry challenges.
The financial risk profile of ASIL, particularly in FY23, was impacted by macroeconomic constraints leading to market contraction, reduced demand, and lower capacity utilization. Despite these challenges, ASIL achieved healthy gross margins through operational efficiencies and technological efficacy. The company’s capitalization profile remains robust, although there is slight pressure anticipated from the forthcoming issuance of a green bond. Liquidity and coverage profiles, which experienced deterioration in FY23, have recovered to adequate levels by the first quarter of FY24.
Enhancing the creditworthiness of this short-term instrument is its security structure, including a 40% investment in government securities. Additionally, ASIL is mandated to maintain a Debt Service Reserve Account (DSRA), accumulating up to 60% of the principal and profit payment of the issue amount, ensuring further financial stability and investor confidence.
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