Press Release

VIS Assigns Preliminary Rating of A- to proposed Sukuk issue of Crescent Steel and Allied Products Limited

Karachi, December 08, 2021: VIS Credit Rating Company Ltd. (VIS) has assigned preliminary rating of A- (Single A Minus) to the proposed Sukuk issue of Rs. 1.0b of Crescent Steel and Allied Products Limited (CSAPL). The outlook on the rating is ‘Stable’. Sukuk rating will be converted into final rating upon review of signed legal documents.

The assigned rating incorporate CSAPL’s diversified revenue streams including exposure to steel, textile, capital markets and power sector coupled with low leveraged capital structure. The ratings are constrained by business risk of the steel segment which comprises sizeable proportion of the company’s revenues. The steel division exhibits inherent cyclicality since business performance largely depends on infrastructure projects, especially pipeline augmentation projects of gas utility companies.

Ease in lockdown and increase in business activity contributed to improvement in demand dynamics during FY21 and resulted in a significant growth in net profit as compared to prior year. However, the commodity uptrend, since the start of ongoing fiscal year, driven by demand-supply imbalances caused the prices of the CSAPL’s key inputs to rise significantly and the inability to pass on price risk of raw material led to losses in steel division in Q1’FY22. Overall loss posted within steel, billet, energy and investment and infrastructure division absorbed the healthy profits posted in cotton division. Going forward, management is expecting securing sizable orders of major projects from the gas utility companies. If they are materialized, these projects will improve the profitability of the company. However, delay in execution of projects remains a key risk factor. Nevertheless, the expected flow of significant amount of dividend income from one of the Company’s strategic investment is likely to provide comfort.

The Sukuk rating is dependent upon translation of projected improvement in revenues and margins into bottom-line and cash flow growth in order to ensure adequate coverage. Meanwhile, leverage indicators are conservative and are expected to remain at manageable levels going forward. Maintenance of leverage profile and cash flow coverage in line with the benchmarks will be important for the assigned rating.

The proposed Sukuk will be privately placed of amount up to Rs. 1b; inclusive of green shoe option of Rs. 200m. Proceeds of the Sukuk issue will be utilized for working capital requirements. The tenor of the issue is of three years and principal will be redeemed in six equal installments starting from the 6th month of drawdown. Security features of the Sukuk entail ranking charge on Fixed Assets. Pricing on the proposed issue is indicative and yet to be confirmed. CSAPL has outstanding entity ratings of
A-/A-2 announced on June 25, 2021.

For further information on this rating announcement, please contact the undersigned (Ext. 202) or Ms. Sara (Ext: 207) or at 021-35311861-70 or email at .

Faryal Ahmad Faheem
Deputy CEO

Applicable Rating Criteria: Structured Covered Bonds/Sukuk (June 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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .