PACRA Places Entity Ratings of Ghani Chemical Industries Limited Sukuk – Feb-17 on ‘Rating Watch’

Lahore, February 10, 2020 (PPI-OT): The ratings recognize Ghani Chemical Industries Limited’s (Ghani Chemicals) prominent position in the industrial and medical gases sector. The industry largely possesses oligopolistic structure, benefiting the players. Recent slowdown in demand for industrial gases from key sectors, in line with the overall economic slowdown, has kept product prices depressed, reflected in a decline in the Company’s margins at gross and operating level. Simultaneous increase in working capital needs on account of slow recovery from customers in the health sector led to higher short-term borrowings, which increased finance cost substantially, resulting in declining profitability.

Resultantly, cashflows and coverages have remained under pressure, highlighting financial risk despite moderate leveraging. Ghani Chemicals’ third 110TPD plant has been set up and is expected to commence commercial operations in 2HFY20. The Company has utilized borrowing to make payment for the new plant, exerting further pressure on coverages. Smooth functioning of the new plant and timely generation of incremental cashflows remains critical to the Company’s performance. The sponsors have provided support to the Company for expansion and working capital management in the past.

The ratings are dependent on the Company’s ability to effectively utilize enhanced capacities. At the same time, management of financial risk, particularly debt coverages, remains important, wherein any further dilution would have negative implications for the ratings. Sustained market share and, in turn, improved margins would support ratings. Ghani Chemicals’ holding company – Ghani Global Holdings Limited – has recently announced that it is planning to divest its stake in the Company, wholly or partially. The final decision regarding this is yet to be announced. Considering the expected change in ownership structure, PACRA has placed the entity ratings of Ghani Gases on ‘Rating Watch’.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com