Press Release

VIS Credit Rating Company Assigns Preliminary Rating to the Proposed Sukuk Issue of Agha Steel Industries Limited

Karachi, April 12, 2022: VIS Credit Rating Company Limited (VIS) has assigned preliminary rating of A (Single A) to the proposed Sukuk issue of Rs. 2 billion (inclusive of a green shoe option of Rs. 500 million) of Agha Steel Industries Limited (ASIL). Outlook on the assigned rating is ‘Stable’. The preliminary rating will be converted to a final rating upon review of signed legal documents. ASIL has been assigned ratings of A/A-2 by VIS.

The company plans to raise Rs. 2b (inclusive of a green shoe option of Rs. 500m) via a Rated, Secured and Privately Placed Sukuk with the option of listing under chapter 5C PSX rule book in the ongoing year (expected drawdown in June’22). The instrument shall have a tenor of fifteen months from the first draw down date, with a call option being available after one year. Proceeds from the issuance will be utilized for settlement of conventional short term financing facilities up to Rs. 1.5b and to finance the ongoing capital expenditure of the company. Profit will be paid on a quarterly basis at a rate of 3 Months KIBOR + 125 bps, with initial payment due at the end of three months from the first draw down date. Principal bullet repayment will be made on the 15th month from the date of the issue. Assigned ratings factor in the security structure of the instrument encompassing first joint pari passu hypothecation charge over all present and future current assets of the Company with 25% margin, personal guarantees of sponsor directors of the organization, and ranking charge over present and future fixed assets of the Company with 25% margin.

Entity ratings of ASIL takes into account the business risk of the long steel sector, which is considered relatively high because of the sensitivity to changes in exchange rate and volatile nature of raw material prices. However, the risk profile is supported by a positive demand outlook and technological competitive edge of the company. The entity is currently working on phase two of its expansion plan, which once completed will result in higher production capacity and enhanced operational efficiency by offering continuous casting and rolling process.

Assessment of financial risk profile of the entity incorporates increasing topline, stable profitability and improving liquidity and capitalization indicators. As the economy continued to recover in FY21 after the COVID-19 induced slowdown, revenue of the Company exhibited a significant increase during the period and 1HFY22. Government’s emphasis on the construction sector proved to be a catalyst in this regard and the growth trend is projected to continue in near future. Despite a sharp rise in raw material prices, ASIL was able to maintain its margins for the assigned ratings, which ultimately led to a higher net profit in line with increasing revenue. Going forward, profit margin is expected to remain range-bound because of rising finance cost. Cash flow indicators have shown some improvement at end-FY21 due to increasing profit. However, debt servicing ratio and coverage for short-term debt have declined at the end of the period because of an increase in the quantum of debt to finance working capital requirements. Capitalization indicators have improved on a timeline basis supported by profit retention and IPO proceeds. The Sukuk rating remains dependent upon projected improvement in liquidity profile and leverage indicators, for which timely completion of the expansion project is considered important.

For further information on this rating announcement, please contact Ms. Asfia Aziz or the undersigned (Ext: 207) at 021-35311861-71 or email at

Sara Ahmed
Director Ratings

VIS Entity Rating Criteria: Corporates (August 2021) & Rating The Issue (November 2021)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited