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The Pakistan Credit Rating Agency Limited
Press Release

Date
19-Aug-20

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

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PACRA Maintains Debt Instrument Rating of Fatima Fertilizer Company Limited | Sukuk

Rating Type Debt Instrument
Current
(19-Aug-20)
Previous
(21-Aug-19)
Action Maintain Maintain
Long Term AA- AA-
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings reflect strong business profile of the company on the back of diversified product mix. Secure supply of gas from Mari field together with lower feed stock price (under fertilizer policy - 2001 up till 2021), represents inherent strengths of the company compared to its peers. Lately, Pakistan's urea market has witnessed certain key changes on the pricing front. In January 2020, the Government decided to prospectively reduce the GIDC from PKR400/bag of urea, as a way to subsidize costs incurred by farmers. Urea prices stabilized in 2QCY20, following varying price cuts by the industry players in the first quarter of CY20. The overall industry demand has largely remained stable despite the outbreak of the COVID-19 pandemic. Some fluctuation was noted in the industry's urea offtake, as depicted by an uneven Month-on-Month (MoM) trend, amid subsequent lockdowns. The industry continues to face challenges in terms of enhancement of business costs. Going forward, these enhanced business costs or any hike in gas tariffs may have to be passed on to the customers. Delay in implementation of subsidy mechanism (most notably for phosphate fertilizer) and in prevention measures against further spread of locust swarms, may put pressure on the farmers’ already tightened purchasing power, potentially bearing an impact on fertilizer offtake. Eyeing for a prolific business model and as envisaged, Fatima Fertilizer is in the process of acquiring the production and operating plants of its associate - Pakarab Fertilizers Limited including Ammonia, Urea, Nitric Acid, NP, CAN and Clean Development Mechanism. The proposed merger with its wholly owned subsidiary - Fatimafert has fully materilised. Post-acquisition, Fatima Fertilizer tends to become a prominent supplier of CAN & NP too. Fatima Group has also ventured an undertaking to secure gas supply to Pakarab by laying gas pipeline - which has been operational since Jan'20. Given strong cashflows on balance sheet, financial risk profile remains comfortable.
The ratings are dependent upon the company’s aptness to uphold its financial risk profile following proposed acquisition of its associate's plants. Meanwhile, improved economic inflows to support additional debt burden, are imperative.

About the Entity
Fatima Fertilizer, listed on Pakistan Stock Exchange, is owned by Fatima Group (45%) and Arif Habib Group (31%). Fatima Group retains management control of the company. Fatima owns a fertilizer complex with nameplate capacity of 1.28mln MT p.a, located at Mukhtar Garh, Rahim Yar Khan. In addition the group owns Pakarab Fertilizers Limited, nameplate capacity - 846,900 MT per annum. It also has interests in textile, sugar, mining and energy sectors.
Fatima's BoDs comprises eight members, including the CEO. The chairman of Arif Habib Group, Mr. Arif Habib, an eminent businessman and a successful entrepreneur, chairs the company's board. Mr. Fawad Ahmed Mukhtar, a seasoned entrepreneur, is the CEO of Fatima Fertilizer as well as of Pak Arab. The CEO is supported by a team of experienced professionals.

About the Instrument
Fatima has a listed, rated and secured Sukuk of PKR 10.5bln which has a tenor of 5 years. Redemption of the Sukuk is in 10 semi-annual installments and coupon payments are payable @6MK+1.10% ending in the year 2021

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.