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Karachi, August 25, 2023 (PPI-OT): VIS Credit Rating Company Limited. (VIS) has reaffirmed instrument rating at A+ (Single A plus) to the Sukuk issue of Rs. 2,600m. Outlook on the assigned ratings is ‘Stable’. Long-term rating of ‘A+’ signifies good credit quality with adequate protection factors. Risks may vary with possible changes in the economy. The previous rating action was announced on June 17, 2022.
OBS AGP (Private) Limited, mainly owned by AGP Limited, completed acquiring 22 brands from Sandoz AG on July 30, 2021. The funding requirement of Rs. 3,700m was met via a Rs. 2,600m Sukuk issue and equity. This privately placed and secured Islamic certificates issue has a five-year tenor with a year grace period. The principal will be redeemed in sixteen equal quarterly installments from the fifteenth month of the issue date. The Sukuk offers quarterly profit payments with a base rate of 3-Month KIBOR plus 1.55% per annum spread. Security includes a pari-passu charge on AGP’s fixed assets and pledge of AGP shares held by APPL and corporate guarantee from AGP covering the entire principal amount.
Assigned ratings take into account the inelastic demand for the product portfolio being acquired along with high relative market share and brand value enjoyed by major products (primarily Azomax and Zatofen). Moreover, comfort is drawn from sponsor’s established market position, long record of accomplishment in the pharmaceutical industry and the resulting operational, managerial and financial support available to the OBS AGP.
Assigned ratings incorporate projected organic growth through increased prices, market penetration, and new product launches. Despite these efforts, OBS AGP continues to face high concentration risk, with a significant portion of sales continuing to come from Azomax. Management is striving to mitigate this risk by diversifying the product portfolio, which may impact future profitability due to increased marketing expenses. Furthermore, liquidity profile and debt servicing capacity of OBS AGP have been strained due to increase in interest rates and exchange rates, which has impacted margins and resultant cash flows.
Maintenance of margins over the rating horizon will remain important. The Company is projecting higher topline growth on account of volumetric sales growth and price increase recently approved by Drug Regulatory Authority of Pakistan (DRAP) as well as volume gains. Going forward, achievement of projected plans along with improvement in liquidity and debt servicing coverage will remain important for ratings.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/
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