Press Release
VIS Reaffirms Sukuk-3 Instrument Ratings of Agha Steel Industries Limited
Karachi, December 21, 2023: VIS Credit Rating Company Limited reaffirms instrument ratings to the Sukuk 3 of Agha Steel Industries Limited ('ASIL' or 'the Company') to 'A+' (‘Single A Plus’). Medium to long term rating of 'A+' indicates good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Outlook on the assigned ratings remains Stable. Previous Rating action was announced on August 25, 2023.
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.
ASIL issued a Sukuk of size PKR 3.4 bln on August 17, 2023, as a debt swap for the prepayment of the Company’s previous outstanding Sukuk issue. The instrument has a tenor of 4 years which includes a grace period of 1.5-years. The Sukuk is secured with a first pari-passu hypothecation charge on all present and future fixed assets, with a 25% margin. Additionally, there's a first pari-passu equitable mortgage charge on the Company’s rights in immovable property, also with a 25% margin. Any shortfall requires cash equity injections from the sponsors per the Sponsor Support Agreement. The Company must deposit one third of the upcoming coupon payment monthly in a Debt Payment Account (DPA).
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.
Credit enhancement for the Sukuk is underpinned by the Sponsor Support Agreement, which necessitates cash equity injections by the Company’s sponsor in case of any shortfalls.
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
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