Pakistan Credit Rating Agency Limited assigns Preliminary Rating to Proposed Sukuk by Engro Fertilizers

Lahore, May 02, 2016 (PPI-OT):The Pakistan Credit Rating Agency (PACRA) has assigned a preliminary rating of “AA-” (Double A Minus) to the proposed privately placed Sukuk of PKR 5,000mln to be issued by Engro Fertilizers Limited (EFert). The rating denotes very strong capacity of timely payment of financial commitments.

The rating incorporates robust financial risk profile of EFert. Cash flows of the company benefit from (i) concessionary rate of feedstock allowed to Enven since Mar-15, (ii) sustained higher capacity utilization at both plants, and (iii) integration of DAP business. This enabled EFert to continue prepayment of debt besides scheduled repayments. Key industry players have obtained stay orders from Sindh High Court, against GIDC on concessionary gas which has the potential to dilute margins. Continuous supplies of gas remains critical.

A portion of gas (60mmcfd, serving ~27% of capacity), which was previously diverted from Guddu Power Plant, has been reallocated to the fertilizer industry; EFert’s share is 12.5mmscfd. Although, EFert has been fully compensated through alternative sources of gas, continuity is yet not certain. Changing dynamics of international urea prices may determine local dynamics of the industry, going forward. Demand/supply dynamics of urea market are sanguine, though the industry’s ability to pass-on cost-hikes has been constrained. EFert continues to derive strength from its association with Engro Corporation. The rating of Sukuk is dependent upon compliance with all major covenants.

For more information, contact:
Hammad Rashid
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com