logo
The Pakistan Credit Rating Agency Limited
Press Release

Date
27-Dec-18

Analyst
Muhammad Noor Ul Haq
noorulhaq@pacra.com
+92-42-35869504
www.pacra.com

Applicable Criteria

Related Research

Disclaimer
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 Maintains Debt Instrument Rating of AGP Limited | Sukuk | Jun-17

Rating Type Debt Instrument
Current
(27-Dec-18 )
Previous
(31-May-18 )
Action Maintain Maintain
Long Term A A
Short Term - -
Outlook Stable Stable
Rating Watch - -

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 benefits the industry players. Product pricing has been a challenge, however, the CPI-linked pricing criteria, recently implemented, has allowed an increase in prices with respect to inflation; indicating a positive sign for the sector. AGP's core profitability is strong in comparison with most of the peers; any downward revision must remain range-bound. Ratings incorporate AGP's strong and sizeable Cash flows and their adequacy to service the debt. Expansion strategies and strategic alliance with Mylan, USA to promote their product portfolio in Pakistan enables volumetric growth. Presence of OBS Group in the pharmaceutical sector provides strength, in the form of group synergies, to AGP's positioning within the industry.
The ratings are dependent on continued sustainability of profits and improved market share. Adequacy of cash flows and availability of alternative resources to make debt-related payment remains critical. Meanwhile, compliance with internally-defined leveraging metrics is a prerequisite. Moreover, the instrument rating is dependent upon upholding of all major covenants.

About the Entity
AGP Limited (AGP) is a listed pharmaceutical company; the operations of entity have been in Pakistan since 1989. Listing in Pakistan Stock Exchange has recently taken place in CY18, making it first public offering of a Pharmaceutical company after a gap of over 23 years. It is majority owned by OBS Group (OBS) (~51%), followed by strategic partners: Muller & Phipps (M&P), Baltoro Growth Fund (BGF), Bank Alfalah, High Q Pharmaceuticals and Aspin Pharma. OBS Group - ranked 9th in the local pharma industry, deals in clinical research, manufacturing, marketing, sales and distribution of pharmaceutical & healthcare products.
The seven-member BoD comprises three representatives of OBS Group, and one each of M&P and BGF and two independent director. The board comprises experienced professionals from pharmaceutical and financial backgrounds. The Chairman, Mr. Tariq Moinuddin Khan, is the brains behind OBS Group. Mr. Khan, CPA from Canada, carries over three decades of domestic and international professional experience. The MD & CEO, Ms. Nusrat Munshi, has close to 27 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 a privately placed and secured Sukuk of ~PKR 2.4bln in order to reprofile 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). As of Sep-18, an amount of PKR 1.8bln is outstanding. The instrument, initially, is secured through 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.

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.