PACRA Assigns Preliminary Rating to Mega Conglomerate (Pvt.) Limited's Short Term Sukuk Issue of PKR 8,500 Million

The rating reflects the Company's association with Mega & Forbes Group of Companies, an established group with presence in shipping, logistics, real estate development, cement, energy and food sectors. Mega Conglomerate (Mega) operates under a holding company structure with an aim to acquire and consolidate some of the group's investments in energy, real estate and food sectors. The rating incorporates the Company's sizeable holding in The Hub Power Company and stake in Haleeb Foods (through Mega Foods (Pvt.) Limited formerly called VMFG (Pvt.) Ltd.) and investment property (through Imperial Developers and Builders (Pvt.) Ltd.). The Company primarily drives its income from dividend stream of underlying investments. The profitability remains under pressure due to high interest expense emanating from debt acquired for financing the investment portfolio. Mega has substantial debt on its balance sheet. However, this debt is fully backed by liquid investments and securities including HUBCO shares, TDRs, and TFCs. Mega intends to issue a short term Sukuk to alleviate liquidity pressure and subsequently substitute the same through a long term Sukuk. The rating draws comfort from built in covenants for timely Sukuk payment including commitment from the Company to have sufficient liquid investment on the balance sheet at the time of repayment.
The rating is dependent on timely and successful issuance of short term Sukuk and, subsequently, a long term Sukuk to re-profile the debt to improve the Company’s liquidity position. Adherence to agreed covenants and maintenance of adequate resources for repayment remains critical.

About the Entity
Mega Conglomerate (Pvt.) Limited (Mega) was incorporated as a private limited company in 2010 in Pakistan under the repealed Companies Ordinance, 1984. The registered office of the Company is situated in Karachi, Pakistan. The Company is owned by Mr. Habibullah Khan (56%) and Mrs. Nusrat Khan (44%). Mr. Habibullah Khan is the founder and Chairman of Mega & Forbes Group. Mega has strategic investments of PKR 24.6bln (as at Dec-18) in an associated company - Hub Power Company Limited (HUBCO) and wholly owned subsidiaries – Mega Foods (Pvt.) Limited, formerly called VMFG (Pvt.) Limited, and G4 Mega Pakistan (Pvt.) Limited (G4). Mega Foods has 56% stake in Haleeb Foods, whereas, G4 owns 100% stake in Imperial Developers and Builders (Pvt.) Limited (IDBL). Moreover, IDBL owns 100% stake of Karachi Properties Investment (Private) Limited (Hotel Metropole). IDBL is engaged in real estate development and has sizeable investment property in Karachi.

About the Instrument
The Company plans to issue a Short Term, Sharia Compliant, Rated, Unsecured & Privately Placed Sukuk of PKR 8,500 Million (inclusive of Greenshoe option of PKR 4,500 Million). The Sukuk carries markup at the rate of 3 months KIBOR plus 1.25 % per annum and will be redeemed at the maturity date i.e. 6 months from the issue date. The proceeds will be utilized to replace certain long term debt obligations of the Company. Mega shall ensure that it will have sufficient cash and/or banking lines available to repay the Sukuk issue and will submit proof of the same 60 days prior to maturity date of the issue and will deposit the amount to be paid at least 7 days before the maturity date, in a designated account.