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The Pakistan Credit Rating Agency Limited
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Date
30-Apr-19

Analyst
Zoya Aqib
zoya.aqib@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 Ltd | Sukuk | Feb-17, Assigns 'Rating Watch - Developing'

Rating Type Debt Instrument
Current
(30-Apr-19)
Previous
(28-Dec-18)
Action Maintain Maintain
Long Term A A
Short Term - -
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. With expectation of continued growth in demand, Ghani Gases is pursuing an expansive strategy to become the market leader by setting up its new ~110TPD 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 ratings of Ghani Gases Sukuk | Feb-17 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. Remaining shareholding lies with public sector companies and financial institutions (14%) and general public (35%). The company's overall capacity currently stands at ~220TPD.
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 seasoned management team.

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 is having a maturity of six years. Principal repayment had started since May17, while remaining would be repaid in 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 Feb19, Sukuk has an outstanding balance of ~PKR 867mln 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.