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The Pakistan Credit Rating Agency Limited
Press Release

Date
30-Apr-19

Analyst
Muhammad Hassan
muhammad.hassan@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 Maintains Entity Ratings of Ghani Gases Limited, Assigns 'Rating Watch - Developing'

Rating Type Entity
Current
(30-Apr-19 )
Previous
(28-Dec-18 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Developing Stable
Rating Watch Yes -

The ratings recognize Ghani Gases’ prominent position in the industrial and medical gases sector. The industry largely possesses oligopolistic structure, benefiting the players. Growth in demand due to increase in industrialization and uptick in economic activity has led the company's revenue to improve and enabled it to add new customers in health sector, merchandise market and industrial undertakings. With expectation of continued growth in demand, Ghani Gases is pursuing an expansive strategy to become the market leader by setting up its new plant, GGL-III. Timely completion and subsequent smooth functioning of the new plant is important. Financial risk profile of the Company is stretched on account of recent rise in short-term borrowing, diminishing free cashflows and coverages, though the Company remains moderately leveraged. Given the group's expansionary stance, sustained vigilance and support from sponsors is essential. The sponsoring family has demonstrated support to the company in the past. Presently, the Company is undergoing a scheme of arrangement which aims to restructure Ghani Gases into a holding company which will be renamed to Ghani Global Holdings Limited while the Company’s manufacturing undertaking will be transferred to subsidiary: Ghani Chemical Industries Limited. This process is expected to complete during FY20.
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 significant dilution would have negative implications for the ratings. Sustained market share and, in turn, better margins would support ratings. Further, considering the ongoing change in ownership structure, PACRA has placed the entity ratings of Ghani Gases on ‘Rating Watch – Developing’.

About the Entity
Ghani Gases Limited, incorporated in 2007 and listed on PSX, is engaged in the manufacturing, sale, and trading of medical and industrial gases and chemicals. The CEO and directors along with their families collectively own majority (51%) shares of the company. The remaining shareholding lies with public sector companies and financial institutions (14%) and general public (35%). The company's product slate consists of liquid oxygen, liquid nitrogen, liquid argon, and calcium carbide. Overall capacity stands at 220TPD combining both plants: GGL I (Lahore) and GGL II (Karachi), whereas GGL III (Lahore) with an installed capacity of ~110TPD is planned to be operational in July19.

Ghani Gases’ nine member board is majorly represented by members of sponsoring family (six), two independent directors and an executive. Mr. Masroor Ahmad Khan is the Chairman of the BoD while Mr. Atique Ahmad Khan holds the office of CEO and Mr. Hafiz Farooq Ahmad is Managing Director. They are assisted by a management team with extensive experience and a diversified skillset. Following the implementation of the scheme of arrangement, Ghani Chemical Industries Limited and Ghani Global Glass Limited (associate) will become subsidiaries of Ghani Global Holdings Limited which will be overseeing Group strategy while monitoring investment in both companies.

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.