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The Pakistan Credit Rating Agency Limited
Press Release

Date
20-Jan-17

Analyst
Aman Zafar
aman.zafar@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA ASSIGNS PRELIMINARY RATING TO PROPOSED SUKUK OF GHANI GASES LIMITED

Rating Type Debt Instrument
Current
(20-Jan-17)
Action Preliminary
Long Term A
Short Term -
Outlook Stable
Rating Watch -

The rating recognizes Ghani Gases significant position in the industrial gases sector. The industry largely possesses oligopolistic structure: benefiting the players. With an expected growth in demand due to increase in industrialization and uptick in economic activity, GGL is pursuing an expansive strategy to become the market leader. The company's performance has improved on account of higher volumes, mainly achieved through capacity expansion and improved margins. Although the company's financial structure is leveraged, cashflows and, in turn, coverages are adequate. Given the group's expansionary stance, sustained vigilance and support from sponsors is essential. Timely completion of projects and subsequently smooth functioning is important. The sponsoring family has demonstrated support to the company in the past. The proceeds from the sukuk issue would be utilized for swapping the multiple existing long-term and short-term loan facilities into a single facility.

The rating is dependent on the company's ability to effectively utilize enhanced capacities. At the same time, management of financial risk particularly debt coverages, remain important, wherein any significant dilution would have negative implications for the ratings.

About the Entity
Ghani Gases Limited (GGL), incorporated in 2007 and listed on PSX, is engaged in the manufacturing, sale, and trading of medical and industrial gases and chemicals. The CEO and directors along with their families collectively own majority (51%) shares of the company. The remaining shareholding of the company is held by public sector companies and financial institutions (9%) and general public (40%). The company's product slate consists of liquid oxygen, liquid nitrogen, liquid argon, and calcium carbide. The company overall capacity is 220TPD combining both GGL I (Lahore) and GGL II (Karachi), whereas GGL III (Karachi) with an installed capacity of ~ 100TPD is planned to be operational during FY18.

GGL's eight member board is majorly represented by members of sponsoring family (six), one independent director and an executive. Mr. Masroor Ahmad Khan is the Chairman of the BoD. Mr. Atique Ahmad Khan holds the office of CEO and Hafiz Farooq Ahmad is Managing Director. GGL's management team comprises qualified and experienced professionals with a wide range of skills related to the industrial gases industry. The strong management team ensures effective delegation of functional responsibility across various departments.

About the Instrument
The Company intends to issue a rated, privately placed and secured sukuk amounting to PKR 1,300mln.The sukuk will have a maturity of six years. The principal amount would be repaid in twenty four consecutive quarterly installments commencing from the 90days from the date of issue. The profit repayment would also be made on a quarterly basis on the outstanding principal amount. The instrument would be having a profit rate of 3M-KIBOR plus 100bps. The proposed sukuk issue is secured by way of a first parri passu charge over present and future fixed asset of the company inclusive of a 20% margin.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.