Press Release

VIS Assigns Preliminary Rating to Proposed Sukuk 2 Issue of Mughal Iron and Steel Industries Limited

Karachi, February 25, 2025: VIS Credit Rating Company Limited (VIS) has assigned preliminary rating of 'AA- (plim)' (Double A Plus Preliminary) to the proposed Sukuk 2 of Mughal Iron and Steel Industries Limited (‘’MISIL’’ or ‘’the Company’’). The medium to long-term rating of 'AA-' denotes high credit quality; protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. Outlook on the assigned rating is ‘Stable’.

The Company plans to issue a medium-term, secured, privately placed Sukuk of up to PKR 2,500 million, including a PKR 1,000 million green shoe option. The instrument has a tenor of up to 15 months, with a bullet principal repayment at maturity. Profits will accrue quarterly in arrears, with the first installment due three months after issuance. The profit rate is the average three-month KIBOR plus 145 basis points per annum. A Debt Payment Account (DPA) will be maintained, with quarterly profit payments deposited five days before each installment. The principal will be funded in two tranches in the last quarter—1/3 on the 60th day and the remainder on the 75th day. A Debt Service Reserve Account (DSRA) of PKR 165 million will be maintained in a bank with a minimum rating of ‘AA-‘ and held under lien of the investment agent. The proposed Sukuk is to be secured against a joint pari passu charge on present and future current assets of the Company with a 25% margin, initially ranking and upgraded to pari passu within 120 days of disbursement.

The assigned rating factors in the credit enhancements as stipulated in the Sukuk structure, with respect to security provided together with maintenance of DSRA and DPA accounts. Rating also incorporates high business risk profile of the steel bar industry in Pakistan, characterized by demand fluctuations, reliance on imported raw materials, and energy-intensive operations. Industry demand remains closely tied to construction activity, infrastructure projects, and housing development, which has remained subdued.

The financial profile assessment reflects revenue growth in FY24, driven by higher volumes and prices across both ferrous and non-ferrous segments. However, margins remained constrained due to inflationary pressures and high energy costs. The Company continues to benefit from a diverse product portfolio, including export revenues from copper ingots. Liquidity metrics remain adequate. However increased reliance on debt for working capital and capital expenditures impacted capitalization and coverage metrics in FY24 and 1QFY25. Management anticipates improvement in financial risk profile on the back of equity injection of Rs. 1.5 billion via a rights issue for working capital support coupled with benefits of declining interest rates. Additionally, the Company projects operational cash flow growth driven by increased ferrous segment volumes and cost savings from captive power generation.

Going forward, the assigned rating will remain sensitive to the Company’s ability to achieve its projected plans. Sustaining its business risk profile, along with enhancing coverage metrics amid challenging market conditions will remain crucial for rating.

For further information on this rating announcement, please contact 021-35311861-64 or email at info@vis.com.pk.











Applicable Rating Criteria: Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
Applicable Rating Criteria: 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/VISRatingcales.pdf

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 2025 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .