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PACRA Maintains Debt Instrument Rating of Pak Arab Fertilizers Limited | TFC

Rating Type Debt Instrument
Action Maintain Maintain
Long Term A- A-
Short Term - -
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 Pak Arab 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 Pak Arab'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, Pak Arab'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 Pak Arab'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 Pak Arab'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 Pak Arab's balance sheet. Post-acquisition, Pak Arab 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
Pak Arab Fertilizer 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, Pak Arab'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.

About the Instrument
Pakarab has a privately placed term finance certificates (PPTFC) of PKR 450mln, issued in May-16 with a tenor of five years. The PPTFC would be payable at 6M KIBOR plus 1.90% per annum. Payments would be payable in six equal installments with the first payment falling at the end of 30th month (30th December 2018) from the first disbursement date (30th June 2016) and subsequently every six months afterwards till June 2022.

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.