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The Pakistan Credit Rating Agency Limited
Press Release

Date
21-Aug-20

Analyst
Bazah Tul Qamar
bazahtul.qamar@pacra.com
+92-42-35869504
www.pacra.com

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PACRA Maintains Entity Ratings of Pakarab Fertilizers Limited

Rating Type Entity
Current
(21-Aug-20)
Previous
(21-Aug-19)
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Developing Developing
Rating Watch Yes Yes

The Company leverages on its ownership strength derived from Fatima Group and Arif Habib Group. Sponsor patronage in the shape of a turnaround plan has come to the rescue. As per the Group level Strategic plan, Fatima Fertilizer is in the process of acquiring major operating plants of its associated Company Pakarab Fertilizers; including Ammonia, Urea, Nitric Acid, NP, CAN and clean development mechanism. Half of the consideration from Fatima Fertilizer, in this regard has been received by the company while the complete roll-out is expected over a short horizon in an installment pattern. In this connection, Fatima Group has successfully finalized its venture to secure gas supply to Pakarab's plant by laying a gas pipeline network from Mari Petroleum, and the gas supply has commenced since Jan'20. Currently, due to a shortfall in the gas requirement, Pakarab's plant is producing NP and CAN at full capacity with a very nominal share of urea production. The revenue is currently being recorded on Pakarab's book as the Asset Sale Purchase Agreement (SPA) is yet to finalize. In the former periods, persistent gas curtailment impacting economic inflows - a major hurdle - coupled with elevated borrowing book posed a key threat to Pakarab's risk profile. With the finalization of the Asset SPA, the Company's financial risk profile is expected to relieve in the way that Fatima Fertilizer shall assume the ultimate liability of Pak Arab's debt obligations in substance, though the borrowing book shall remain on Pakarab's balance sheet. Post-acquisition, Pakarab Fertilizer is expected to develop a small yet a sustainable business model. Revenue stream shall majorly include income from DAP trading, Carbon Dioxide plant activity, and other non-core activities. These income stream alongside consideration for acquisition from Fatima Fertilizer would enable the company in meeting its financial needs.
The rating are kept under 'Rating watch' with 'Developing' outlook in anticipation to surveil the complete roll-out of the acquisition plan. The ratings would be updated once the evolving position is settled.

About the Entity
Pakarab Fertilizers 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 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. Currently, Pakarab's fertilizer complex is located in Multan with a nameplate capacity of 846,900 MTPA, whereas the company's head office is situated in Lahore.
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.

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.