The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Maintains Instrument Rating of Fatima Fertilizer Company Limited | Sukuk

Rating Type Debt Instrument
(01-Nov-18 )
(08-Aug-17 )
Action Maintain Maintain
Long Term AA- AA-
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings reflect strong business profile of the company on the back of diversified product mix. Secure supply of gas from Mari field together with lower feed stock price (under fertilizer policy -2001 up till 2021), represents inherent strengths of the company compared to its peers. Overall capacity utilization continued to exceed 100% (previously: 90% - 98%) based on ammonia debottlenecking. In line with the industry, company revived from the supply surplus situation due to oversupply in the domestic market. Plus, the latest domestic supply/demand scenario is favourable, increased urea prices, provided additional cushion to the business in enhancing its margins. Eyeing for a prolific business model, Fatima Fertilizer has proposed merger with its wholly owned subsidiary - Fatimafert along with the acquisition of all five fertilizer plants of its associate - Pakarab Fertilizer Limited including Ammonia, Urea, Nitric Acid, NP, CAN and clean development mechanism. Regulatory approvals are being sought. Post-acquisition, Fatima Fertilizer tends to become a prominent supplier of CAN & NP with the overall nameplate capacity of 2,572,400 Metric tonnes/year. Fatima Group has also ventured an undertaking to secure gas supply to Pakarab by laying gas pipeline. The leveraging is expected to move up yet would remain aligned with the risk profile of the entity. Given strong cashflows, financial risk remain comfortable.
The ratings are dependent upon the company’s ability to absorb debt profile of the proposed acquisitions. Revival of the Pakarab's plants, acquired by Fatima Fertilizer is crucial.

About the Entity
Fatima Fertilizer, listed on Pakistan Stock Exchange, is owned by Fatima Group (45%) and Arif Habib Group (31%). Fatima Group retains management control of the company. Fatima owns a fertilizer complex with nameplate capacity of 1.28mln MT p.a, located at Mukhtar Garh, Rahim Yar Khan. In addition the group owns Pakarab Fertilizers Limited, nameplate capacity - 846,900 MT per annum and Fatimafert Limited, nameplate capacity - 445,500 MT per annum. It also has interests in textile, sugar, mining and energy sectors.
Fatima's BoDs comprises eight members, including the CEO. The chairman of Arif Habib Group, Mr. Arif Habib, an eminent businessman and a successful entrepreneur, chairs the company's board. Mr. Fawad Ahmed Mukhtar, a seasoned entrepreneur, is the CEO of Fatima Fertilizer as well as of Pak Arab and Fatimafert. The CEO is supported by a team of experienced professionals.

About the Instrument
Fatima has a listed, rated and secured Sukuk of PKR 10.5bln, currently standing at PKR 8.4bln which has a tenor of 5 years. Redemption of the Sukuk is in 10 semi-annual installments and coupon payments are payable @6MK+1.10% ending in the year 2021.

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.