The Pakistan Credit Rating Agency Limited
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Timnat Thomas

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PACRA Maintains Rating of Fatima Fertilizer Company Limited | Sukuk

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

Pakistan has an agrarian economy, thus fulfils around ~ 84% of its fertilizer requirement through local production while the remaining is met through imports. The Country's total fertilizer production capacity sails around ~ 7.1mln MT of Urea and CAN and ~ 1.7mln MT of DAP, NP, and NPK. In 5MCY21, Urea’s offtake stood at 2.2mln MT. Meanwhile, DAP’s offtake stood at 423,000MT. The overall margins of the industry registered a healthy growth on the gross and net levels due to unchanged gas rates and effective cost controls despite inflationary pressures.
The ratings reflect Fatima Fertilizer Company Limited's ('Fatima' or 'the Company') association with strong business Groups, Fatima Group and Arif Habib Group. The Company holds the highest market share in NP and CAN. Furthermore, after the acquisition of the Pakarab Fertilizer’s plants (Ammonia, Urea, Nitric Acid, Nitro Phosphate, Calcium Ammonium Nitrate, and Clean Development Mechanism) the Company has increased its overall market standing. The Company's topline comprising mainly of Urea and NP has seen a two-fold increase post the acquisition and is expected to witness growth on the back of operational efficiency. The Company has maintained healthy margins over the years owing to efficient operations and having a dedicated gas supply line from Mari fields. The Company has continuously invested in optimizing its production plants and reaps the benefits of having increased utilization and higher run time of its production facilities. Moreover, income from the trading portfolio provides limited support to the Company's bottom line. The Company’s financial profile is characterized by modestly leveraged capital structure, very strong coverages, and efficient management of working capital. Ratings draw comfort from business acumen from the sponsors and a strong governance framework.
The ratings are dependent on the Company's ability to sustain its margins and healthy coverages while maintaining cushion and adherence to strong financial discipline. Substantial deterioration in margins and profitability would adversely impact the ratings.

About the Entity
Fatima Fertilizer Company Limited ('Fatima' or 'the Company') was incorporated in Dec-03 as a public limited company under the repealed Companies Ordinance, 1984 (now Companies Act. 2017). The Company was listed on the PSX in 2010. The Company is primarily involved in manufacturing and selling variants of fertilizers (Urea, CAN, and NP) and chemicals. The production facilities are all located in Punjab, Pakistan. The has an overall nameplate capacity of 2.57mln MT. In CY20 capacity utilization stood at 95%.
Fatima Group holds 45% of the total shares through associated companies (23%) and individuals (22%), while Arif Habib Group holds 34% through associated companies (16%) and individuals (18%). The Company's Board is Chaired by Mr. Arif Habib. Mr. Fawad Ahmed Mukhtar heads the Company as the CEO and is assisted by a team of experienced professionals.

About the Instrument
Fatima Fertilizer Company Limited (“Fatima Fertilizer” or the “Issuer” or the “Company”) issued a Listed, Rated & Secured, Islamic Certificates ("Sukuk") of PKR 10,500 mln. The tenor of the instrument is 5 years. The proceeds are being utilized for paying off the Company's existing syndicated term finance facility. Profit is being paid semiannually in arrears on the outstanding principal amount at the rate of 6 M KIBOR + 1.1%. Principal repayment is being paid in 10 equal semi-annual instalments. The Sukuk is secured by the first pari passu charge with a 25% margin on all present and future fixed assets of the company, including land & building.

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.