PACRA Assigns Preliminary Ratings to Loads Limited - PPSTS - PKR 750mln | TBI

Loads Limited ('Loads' or 'the Company') is associated with Treet Corporation. Loads is a prominent auto parts manufacturer catering to Original Equipment Manufacturers (OEMs). Earlier, persistent economic instability, inflationary pressures, and exchange rate fluctuations had impacted the overall performance of Loads. Pakistan's auto industry is fairly fragmented. The demand is primarily driven by auto sales and is met through OEMs, replacements, and export markets, while the remaining is met through imports. During FY24, production levels and, thus, sales of the auto industry posted a decline. Lately, as the sector's overall outlook has begun to stabilize, Loads management has diversified its revenue-generating avenues, i.e., a mix of OEMs, replacement/aftermarket (RM) sales, along with identifying and catering to export orders. This, along with a reduced quantum of debt on the balance sheet, gives a breather. In the meantime, technical and financial support from the Group - Treet Corporation - adds the requisite respite, thus providing comfort to the ratings. On the Group level, a considerable revamp in the overall financial position and performance is also visible and adds a cushion. Loads business risk profile, including margins, is gradually picking up, thus supporting the overall performance. Earlier, Loads had to impair the investment in its subsidiary, Hi-Tech Alloy Wheel Ltd. ('Hi-Tech'), as its commissioning was considerably delayed due to economic uncertainty and a downturn in the auto sector. Lately, cautious cost control efforts have revived the profits. This, along with the management's stringent efforts to sell Hi-Tech, is expected to bring in liquidity. Loads managed its working capital requirements through short-term borrowings, which due to weak coverages created a challenge. Lately, the management plans to diversify this and raise funds by issuing a Privately Placed Short Term Sukuk (PPSTS). This, along with other ongoing efforts, is expected to stabilize the otherwise weak financial risk profile and a declining equity base. Loads seems fairly able to successfully materialize the envisioned initiatives. This remains imperative. A strong governance framework and managerial practices are beneficial.
The Company shall deposit the principal and profit amount in the sukuk redemption account fifteen (15) days prior to the disbursement date of each quarter. Profit will be payable on a quarterly basis on the outstanding principal amount in arrears.

About the Entity
Loads Limited ('Loads' or 'the Company') was established in 1979 and was listed on the PSX in 2016. Loads is mainly engaged in the production of exhaust systems, metal sheet components, and radiators. Mr. Syed Shahid Ali holds a major stake of ~37.7% and also chairs the BoD. While Mr. Mohtashim Aftab is the CEO. They are assisted by a team of experienced professionals.

About the Instrument
Loads is set to issue a PPSTS with an issue size of PKR 750mln, including a green shoe option of PKR 250mln. PPSTS will comply with relevant and applicable legal, regulatory, and Shariah principles. The tenor is for 9 months from the first day of subscription. The PPSTS carries a profit rate is 3MK + 2.5%. The proceeds will be mainly used to manage the additional working capital requirements to cater to the increased demand of OEMs. The PPSTS will be redeemed in three quarterly installments.