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The Pakistan Credit Rating Agency Limited
Press Release

Date
20-Apr-18

Analyst
Raniya Tanawar
raniya.tanawar@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 Pakarab Fertilizers Limited

Rating Type Debt Instrument
Current
(20-Apr-18)
Action Preliminary
Long Term A
Short Term -
Outlook Stable
Rating Watch -

The ratings reflect the strength of the ownership structure of Pakarab: Arif Habib Group and Fatima Group. This strength has been demonstrated in the past both in terms of ongoing support and at the times of stress. The company has a sizeable loan from sponsors, considered as quasi equity. The company’s operations were facing challenge due to gas shortage in the country. RLNG provided requisite support and now the company is getting natural gas from the system as well (~28%). The company has a diverse product mix with the ability to make best use of available raw material. The demand/supply dynamics in the urea industry is adequate and the product prices have also come down from historical highs. Pakarab is distinctly placed in this context, given its product mix having a lower proportion of urea. Margins have come down; given rise in LNG price. The financial sustainability of the company still drives from stability in operations, continued sponsor support and timely recovery of stuck-up receivables. The rating of the Sukuk derives strength from the security structure.
The ratings are dependent on the sustained risk profile of the company, seamless financial discipline in the wake of upcoming debt repayments. For this, continuity of profitable operations is crucial.

About the Entity
Pakarab Fertilizer Limited is owned by a consortium between two major business groups in Pakistan namely Fatima Group and Arif Habib Group. Arif Habib Group ranks amongst the prominent financial services group in Pakistan and holds interests in the securities brokerage, investment and financial advisory, investment management, commercial banking, commodities, and private equity, cement and fertilizer industries. Fatima Group is one of the leading corporate groups in Pakistan, engaged in trading of commodities, manufacturing of fertilizers, textiles, sugar, mining and energy. Pakarab's plant is located in Multan with a total capacity of 70000 MTPA whereas the company's head office is situated in Lahore.

The board comprises eight members; equally represented through Arif Habib and Fatima Group. Mr. Fawad Ahmed Mukhtar is the Chief Executive Officer of the Company. He possesses vast business acumen spanning over three decades and has been associated with the company since
2005.

About the Instrument
Pakarab intends to issue a secured privately placed diminishing musharaka Sukuk with an amount PKR1000mln inclusive of green shoe option of PKR250mln for a tenor of 5 years. The Sukuk will be repaid in eight (8) equal semi-annual payments starting from eighteenth (18) month from the issue. The Sukuk is secured by Exclusive Hypothecation Charge over the Musharaka Assets with 25% margin. Assignment of lease agreement between Fatima Fertilizer and PFL in favor of Investment Agent. Lien on Collection Account and Debt Payment Account. The issuer will be filling DPA 50% prior to 30 days and 50% prior to 15 days from the payment date.

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.