PACRA Assigns Initial Instrument Rating to Sukuk of AGP Limited; Maintains Entity Ratings

The ratings reflect AGP's strong business fundamentals. The pharmaceutical industry has witnessed a high rate of sustained growth over the years. Cost-efficiencies as well as demand inelasticity are benefiting the industry players. While product pricing has been a challenge, the new CPI-linked pricing criteria has allowed an increase in prices with respect to inflation, indicating a positive sign going forward. At the same time, AGP's core profitability is strong; any downward revision in margins must remain range-bound. Cash flows - strong and sizeable - are adequate to service the debt initially procured by the incumbent sponsors – OBS Group – to acquire the company in 2014. With the recent debt re-profiling, debt servicing ability would improve further. The presence of OBS Group in the pharmaceutical sector provides strength, in the form of group synergies, to AGP's positioning within the industry. Furthermore, the management is committed to maintain sufficient liquidity for the Sukuk.

The ratings are dependent on continued sustainability of profits and market share. Adequacy of cash flows and availability of alternative resources to make debt-related payment remains important as well. Meanwhile, compliance with internally-defined leveraging metrics is a pre-requisite. Moreover, the instrument rating is dependent upon upholding of all major covenants.

About the Entity
AGP Limited (AGP) is an unlisted public pharmaceutical company; the operations of entity have been in Pakistan since 1989. It is majority owned by OBS Group (OBS) (69%), followed by strategic partners: Muller & Phipps (M&P), Baltoro Growth Fund (BGF), and JS Bank. OBS Group - ranked 5th in the local pharma industry, deals in clinical research, manufacturing, marketing, sales and distribution of pharmaceutical & healthcare products.

The seven-member BoD of AGP comprises five representatives of OBS Group, and one each of M&P and BGF. The board comprises experienced professionals from pharmaceutical and financial backgrounds. The Chairman, Mr. Tariq Moinuddin, is the brains behind OBS Group. Mr. Moinuddin, CPA from Canada, carries over three decades of domestic and international professional experience. The MD & CEO, Ms. Nusrat Munshi, has close to 26 years of experience, around a decade of which is in the pharmaceutical industry. She is supported by an experienced core management team.

About the Instrument
AGP has issued (Jun’17) a privately placed and secured Sukuk of ~PKR 2.5bln in order to re-profile its long-term debt. With a tenor of 5 years, the Sukuk’s principal and profit (3MK+1.3%) will be paid in 20 equal quarterly installments, starting from the 3rd month of issue date (Sep’17). The instrument, initially, is secured with ranking charges which will be upgraded to first pari passu charges over all present and future non-current assets (~PKR 3.1bln) of AGP and Aspin Pharma (associate). AGP’s management is committed to maintain sufficient liquidity for the instrument.