PACRA Maintains Entity Ratings of Engro Polymer & Chemicals Limited | Sukuk | Jan 19
|Rating Type||Debt Instrument|
The ratings recognize Engro Polymer’s (‘EPCL’ or ‘The Company’) established foothold in the local Poly Vinyl Chloride (PVC) and caustic soda market. EPCL is the only manufacturer of PVC with a market share of ~68% in domestic market. Better PVC prices and improved vinyl chain dynamics led to higher revenues in CY19. However, due to Covid-19 outbreak, demand of PVC suffered, affecting the Company’s profitability. Demand remained suppressed during initial few months of CY20 but it has started to recover since, due to easing of lockdowns and resumption of construction activities. The Company has undertaken various expansion projects that include both enhancements in capacity of existing product lines and introduction of new products to diversify EPCL’s product mix. These include addition of 100K tons capacity to PVC and 50K tons to VCM. CAPEX amount of this project stands at ~PKR 11.5bln after some revision in project cost and currency devaluation. The Company is also entering Hydrogen Per Oxide market through a green field manufacturing facility by investing ~USD 23mln. Due to Covid-19 outbreak and subsequent lockdown, progress of expansion projects has been slow. The revised timeline for PVC/VCM expansion has been extended by 3 months to 6 months and for other projects by 6 months to 1 year due to Covid-19 led shipment disruptions. The Company issued right shares of PKR 5.4bln and raised debt to finance these projects. The Company still enjoys very strong liquidity position on the back of sizable deposits and liquid assets, supplementing it cashflows. The ratings incorporate, EPCL's association with one of the country's leading conglomerate – Engro Corp – and very strong financial profile of the sponsor.
The ratings are dependent upon holding sustained operations and improvement in margins. Successful execution of planned expansion projects, while maintaining stable coverages would remain important to uphold ratings. Sustenance of import and anti-dumping duty is important for the sustainability of the risk profile of the Company.
EPCL, established in 1997, started commercial production in 1999. The Company is listed on Pakistan Stock Exchange. EPCL is primarily involved in the manufacturing, marketing and distribution of PVC and its allied products with design annual capacity of 195,000 tons per annum. Caustic Soda – another product - adds meaningful diversification to the Company’s business. EPCL is a subsidiary of Engro Corporation Limited (ECL) having majority stake (56%). The other major shareholder is Mitsubishi Corporation (11%). The Board of Directors (BoD) comprises 9 members including CEO. Five Board members are from the parent organization, one member represents Mitsubishi Corporation and remaining three are independent directors. Mr. Ghiasuddin Khan – the CEO of Engro Corp - is Non-Executive Chairman of EPCL.
EPCL issued a privately placed, secured Sukuk of PKR 8.75bln (inclusive of PKR 5bln green shoe option) on 11-Jan-2019 at 3MK+.90bps. Tenor of the Sukuk is 7.5 years with initial 5.5 years as grace period. The Sukuk's profit (3MK+.90bps) is payable quarterly in arrears. As of now, EPCL has made all the profit payments on time.