The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Adjusts Rating of Ghani Chemical Industries Ltd's Sukuk | Feb-17, Assigns Negative Outlook

Rating Type Debt Instrument
Action Downgrade Maintain
Long Term A- A
Short Term - -
Outlook Negative Developing
Rating Watch - Yes

The Ghani Global Group of Companies recently underwent a scheme of arrangement which resulted in the transfer of the manufacturing undertaking, along with all assets and liabilities, of Ghani Global Holdings Limited (formerly “Ghani Gases Limited”) to subsidiary, Ghani Chemical Industries Limited (Ghani Chemicals). The previous ratings correspond to Ghani Gases Limited while the current rating corresponds to Ghani Chemical Industries Limited.
The ratings recognize Ghani Chemicals' prominent position in the industrial and medical gases sector. The industry largely possesses oligopolistic structure, benefiting the players. Recent slowdown in demand for industrial gases from key sectors, in line with the overall economic slowdown, has kept product prices depressed, reflected in a decline in the Company's margins at gross and operating level. Simultaneous increase in working capital needs on account of slow recovery from customers in the health sector led higher short-term borrowing, which increased finance cost substantially, leading the Company to book a net loss for FY19. Resultantly, cashflows and coverages witnessed a downturn, highlighting financial risk despite moderate leveraging. Ghani Chemicals’ third 110TPD plant has been set up and is expected to commence commercial operations in 1HFY20. The Company will be taking on additional debt to make payment for the new plant, due in Dec-19, which may exert further pressure on coverages. Smooth functioning of the new plant and timely generation of incremental cashflows remains critical to the Company’s performance. Given the Group's expansionary stance and stressed financial performance, sponsors have committed to sustained vigilance and support, as extended in the past.
The ratings are dependent on the Company's ability to effectively utilize enhanced capacities. At the same time, management of financial risk, particularly debt coverages, remains important, wherein any further dilution would have negative implications for the ratings. Sustained market share and, in turn, improved margins would support ratings.

About the Entity
Ghani Chemical Industries Limited is an unlisted, public concern, incorporated as a private limited company in Nov-15 and subsequently converted to public status. Up till Jul-19, the Company had not started commercial operations. In Jul-19, as part of the Scheme of Compromises, Arrangement and Reconstruction undertaken by the Ghani Global Group of Companies, the manufacturing undertaking of Ghani Global Holdings Limited (formerly “Ghani Gases Limited”), along with all assets and liabilities, was transferred to Ghani Chemicals. The Company is a subsidiary (~99%) of Ghani Global Holdings Limited which is owned majorly by the Ghani Family (~56%).

About the Instrument
The Company has issued a rated, privately placed and secured Sukuk amounting to PKR 1,300mln on 3rd February 2017. The Sukuk has a maturity of six years. Principal repayment started since May17 with consecutive quarterly installments. The profit repayments are being made on a quarterly basis on the outstanding principal amount on a floating rate of 3M-KIBOR plus 100bps. The 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. As of end-Jun19, the Sukuk has an outstanding balance of ~PKR 813mln and will be fully mature in Feb23.

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.