The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Assigns Preliminary Rating to Mughal Iron & Steel Industries Limited | PP Sukuk | PKR 5,000 million | TBI

Rating Type Debt Instrument
(25-Jan-22 )
Action Preliminary
Long Term AA-
Short Term -
Outlook Stable
Rating Watch -

Mughal is a known name in the steel industry. The Company’s business profile has significantly improved, over the last few years. Governance framework strengthened by induction of independent oversight on board. The Company has diversity in its product slate; Rebars, T-Iron and Girders etc. Furthermore, establishment of strong brands like ‘Mughal Supreme’ gives competitive edge to the Company. The company has attained formidable market share by penetrating retail segment. The strategic realignment executed over the last few years by channeling 60% volumes (previous: 10% of sales mix) to retail market has been fruitful. The company’s revenues witnessed an increase (FY21: PKR 44.9bln, FY20: PKR 27.3bln) attributed to an uptick in sale volumes, positive price indicators and reinvigorating economy. The financial risk profile incorporates healthy capitalization indicators, liquidity profile is evident from strong cash flows and improved coverages. The ratings incorporate the essence of material advancement that the company has achieved in terms of further diversity in revenue streams, which will add not only to the top line but also enhanced profitability, going forward. Consequently, company made prominent growth in non-ferrous segment and further decided to enhance this segment; therefore, the Company is planning to issue a Sukuk of PKR 5,000mln which will be used for meeting working capital requirements arise due to significant increase in commodity prices, increase in production volumes and upcoming expansion. The assigned ratings take comfort from the debt payment account mechanism, apart from the conventional security. Debt Service Reserve Account ("DSRA") will be maintained equivalent to the one full upcoming instalment (principal + profit) under lien of the Invest Agent throughout the tenor of the facility from the date of completion of grace period. Further, during the grace period DSRA will be build up and maintained for one profit payment. Other then DSRA a debt payment account (DPA) will be maintained with agent bank. One-third of the upcoming installment (principal plus profit) will be built up each month by 25th day such that entire upcoming installment is deposited in DPA by 25th day of 3rd month. In case of DPA not fulfilled, Investment Agent would have full recourse to DSRA which will be utilized in case such need arises.
The ratings are dependent upon the company’s ability to sustain its healthy business profile amidst strong competition, herein, effective and prudent management of financial risk indicators remain important. Moreover, upholding of governance framework is vital.

About the Entity
Mughal Iron & Steel Industries Limited (Mughal), is a public limited company incorporated in 2010, is primarily engaged in manufacturing and sale of billets, girders and rebars. Mr. Khurram Javed is the driving force behind the Company and is leading the business as CEO.

About the Instrument
Mughal is planning to issue ‘Listed, Secured & Privately Placed Long Term Islamic Certificates (Sukuk) up to PKR 5Bln (inclusive of a Green Shoe option of PKR 2Bln). The tenor of Sukuk will be 5 years. Sukuk will be priced at 3MK+1.3% p.a. with profit payable quarterly in arrears on the outstanding principal amount. Security Structure is first pari passu charge over-all present and future movable assets with a margin of 25% (in accordance to the Issue amount).

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.