Press Release
VIS Assigns Preliminary Ratings to Short-Term Sukuk Instrument of Agha Steel Industries Limited
Karachi, December 21, 2023: VIS Credit Rating Company Limited assigns preliminary instrument ratings to the Short-term Sukuk of Agha Steel Industries Limited ('ASIL' or 'the Company') to 'A-1' ('A-One'). Short term rating of 'A-1' indicates high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor.
Agha Steel Industries Limited was established in Pakistan on November 19, 2013, as a private limited company. On April 07, 2015, ASIL transitioned to a public limited company. The Company was listed on the Pakistan Stock Exchange through an IPO in November 2020. The central operation of ASIL’s business is focused on the production and sale of steel bars, wire rods, and billets. The Company's registered office and manufacturing facilities are located at Port Qasim Authority, Karachi.
The Company has proposed a PKR 2.0 bln short-term sukuk with a tenor of up to 6 months from issuance. The profit rate will be 6M KIBOR plus a spread yet to be finalized. Principal redemption will occur as a bullet payment upon maturity. The Sukuk is secured by a ranking charge on the Company's present and future fixed assets with a 25% margin.
Assigned ratings incorporate a high business risk profile within the long steel industry. This is attributed to the industry's exposure to cyclicality and intense competition. Despite these challenges, ASIL's technological advantage provides a level of support to the ratings.
Assigned ratings also consider the financial risk profile of ASIL. In FY23, the Company faced a contraction in the market due to macroeconomic constraints, leading to reduced demand and lower capacity utilization. However, ASIL managed to achieve healthy gross margins through operational efficiencies with its technological efficacy. The ongoing technological advancements, including the Electric Arc Furnace (EAF) and Mi. Da. Rolling project, contribute to ASIL's operational strengths. The capitalization profile remains adequate, with slight pressure expected from the upcoming issuance of a green bond. Liquidity and coverage profiles, while having experienced deterioration in FY23, recovered to adequate levels by 1QFY24.
Short-term credit enhancement for the instrument is substantiated by the security structure, underpinned by a 40% investment in government securities. Moreover, the Company is required to maintain a Debt Service Reserve Account (DSRA), accumulating up to 60% of the principal and profit payment of the issue amount on the 25th day of the fifth month from the issue date. This accumulation will be at a rate of 1/5 of the principal and profit installment on the 25th day of each month following the issue date.
For further information on this ratings announcement, please contact Mr. Saeb Muhammad Jafri (Ext: 202) or the undersigned (Ext: 201) at 021-35311861-64 or email at info@vis.com.pk.
Javed Callea
Advisor
Applicable Rating Criteria:
Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
Rating the Issue
https://docs.vis.com.pk/docs/Rating-the-Issue-Aug-2023
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf