VIS Reaffirms Sukuk Rating for Sitara Chemical Industries

Karachi: VIS Credit Rating Company Limited has reaffirmed the medium to long-term Sukuk ratings of Sitara Chemical Industries Limited (SCIL) at ‘AA-‘ (Double A Minus). This rating indicates high credit quality with strong protection factors, though risk factors may vary with economic changes. The outlook for these ratings remains stable. Previously, a rating action was announced on March 4, 2025.

SCIL, established in 1981 and listed on the Pakistan Stock Exchange, operates as a Shariah-compliant company certified by the Securities and Exchange Commission of Pakistan. The company’s principal activities include the operation of a Chlor Alkali plant and an Oleo Chemical plant, producing caustic soda, liquid chlorine, specialty chemicals, food-grade gases, and oleo chemicals. SCIL also owns a yarn spinning unit, with its registered office in Karachi and manufacturing facilities in Faisalabad.

The company has issued a medium to long-term, rated, secured, and privately placed Sukuk worth PKR 2.3 billion to finance a new 50-megawatt coal-fired power plant. The Sukuk has a seven-year tenor, including an 18-month grace period and quarterly rental payments at 3M KIBOR+175 basis points. The security features include a charge on the company’s assets, cash entrapment via finance payment and collection accounts, and a call option exercisable after three years with a 60-day notice.

The strong security structure of the Sukuk and the establishment of repayment prioritization mechanisms underpin the assigned rating. The medium to low business risk profile of SCIL is supported by the industry’s moderate cyclicality and high entry barriers. Additionally, SCIL’s diverse product portfolio and strong clientele, including major multinationals, bolster the rating.

The financial risk profile of SCIL for the first half of fiscal year 2025 shows stable gross margins, aided by timely price adjustments of finished goods. The company optimized energy expenditures by deploying alternative power sources and commissioning a solar power system, mitigating the impact of increased tariffs by Faisalabad Electric Supply Company. Improvements in coverage profiles were noted due to a recovery in funds from operations, supported by tax refunds. However, increased debt utilization for the coal-fired power plant project impacted capitalization metrics. Liquidity remained stable but continues to constrain the ratings.