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PACRA Upgrades Rating of Ghani Chemical Industries Limited | Sukuk | Feb-17

Rating Type Debt Instrument
Action Upgrade Maintain
Long Term A A-
Short Term - -
Outlook Stable Stable
Rating Watch - -

The ratings recognize Ghani Chemical Industries Limited's (GCIL) leading and prominent position in the industrial and medical gases sector in terms of production capacity. The demand for medical gases in the health sector has significantly escalated during the third wave of Covid-19 and is expected to sustain in the short to medium term. On the other side manufacturing and construction industry has comprehended recovery which led to improved demand for industrial gases. The company was able to capitalize growth from (a) Underutilized free capacity, which was available as a result of 3rd 110TPD plant expansion (b) price rationalization of medical and industrial gases also witnessed from the financial performance of the company recorded in 9MFY21. The company’s margins, coverages and working capital cycle showed improvement at all levels. Cash flows of the Company also posted healthy growth. All three plants are operational with higher capacity utilization. Capacity expansions are underway and currently, the Company is setting up its fourth 105TPD dedicated plant which will cater for the need of a renowned big industrial customer through a long term sale contract and would play a vital role towards top-line and bottom-line growth. GCIL also intends to set up the largest 275TPD plant in KPK in future as well.
The ratings are dependent on the Company's ability to effectively utilize enhanced capacities. At the same time, management of financial risk, particularly debt coverages, remains important, wherein any further deterioration would have negative implications for the ratings. Consistent growth in market share and improved margins would support ratings.

About the Entity
Ghani Chemical Industries Limited is an unlisted, public concern, incorporated as a private limited company in Nov-15 and subsequently converted to public status. In Jul-19, as part of the Scheme of Compromises, Arrangement and Reconstruction undertaken by the Ghani Global Group of Companies, the manufacturing undertaking of Ghani Global Holdings Limited (formerly “Ghani Gases Limited”), along with all assets and liabilities, was transferred to Ghani Chemicals Industries Limited. The Company is a subsidiary (~74.45%) of Ghani Global Holdings Limited which is owned majorly by the Ghani Family (~52%). The remaining shareholding lies Ghani Products (Pvt.) Ltd. Ghani Chemicals is engaged in the manufacturing, sale, and trading of medical and industrial gases and chemicals. The Company's overall capacity stands at ~330 TPD while its product slate consists of Liquid Oxygen, Liquid Nitrogen, Liquid Argon and Calcium Carbide. Ghani Chemicals’ four member board is majorly represented by sponsoring family: Mr. Masroor Ahmad Khan is the Chairman of the BoD while Mr. Hafiz Farooq Ahmad holds the office of CEO.

About the Instrument
Ghani Chemical Industries Limited (“GICL” or the “Issuer” or the “Company”) issued a Rated, Privately Placed & Secured, Islamic Certificates ("Sukuk") of PKR 1,300 mln. The tenor of the instrument was 6 years initially which has been extended to 7 years due to the deferment of the principal amount availed in CY20. The proceeds are being utilized for swapping of multiple existing long term and short term facilities into a single facility, while the remaining amount will be used in business operations. Profit is being paid on a quarterly basis in arrears at the rate of 3 M KIBOR + 1%. Principal repayment was being paid in 24 consecutive quarterly instalments except for the period from May'20 till Feb'21 where deferment of the principal amount was availed. Repayment of the principal amount along with profit has resumed from May'21.

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.