Karachi, April 25, 2018 (PPI-OT): JCR-VIS Credit Rating Company Ltd. (JCR-VIS) has assigned preliminary rating of ‘A+’ (Single A Plus) to the proposed Sukuk issue of Rs. 5 billion (inclusive of a Green Shoe Option of Rs. 1 billion) of Agha Steel Industries Limited (ASIL). Outlook on the assigned rating is ‘Stable’. The preliminary rating will be converted to a final rating upon review of signed legal documents. The proceeds of the Sukuk will be utilized for retirement of existing long term debt and to fund planned expansion. JCR-VIS has assigned an entity rating of A/A-1 to ASIL.
The assigned ratings incorporate ASIL’s position as a top-tier player in the long steel sector enjoying strong brand name and recognition, healthy financial risk profile and strong debt servicing mechanism for the Sukuk. Ratings also reflect high business risk profile of the sector as evident from expected increase in competition post capacity expansion by established existing and new players (Aggregate capacity of established players increasing by around 3(x)), significant reliance of the sector on duty protection and cyclical nature of the industry. However, these factors are partially mitigated by healthy demand outlook due to ongoing construction activities and demand from large infrastructure projects.
Financial profile derives support from double digit growth in profitability, strong debt servicing ability, and healthy liquidity profile. The company’s superior gross margins vis-à-vis competitors has resulted in higher cash flow generation which partially mitigates the projected increase in gearing levels post Sukuk issuance. Planned Initial Public Offering in the latter half of the ongoing year will facilitate in reducing leverage indicators. However, continuity of high leverage indicators beyond benchmark for the assigned ratings may trigger a rating review.
Rating draws strength from the collection account mechanism and its strict implementation envisaged for payment of the Sukuk through which 70% of the inflows of the company will flow through designated collection accounts and will be used to fund the debt payment account. Even after significantly sensitizing for lower than projected revenues and margins, cushion in debt servicing is projected to remain adequate.
For more information, contact:
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Category: General Business News