Press Release

VIS Reaffirms Sukuk Ratings of Crescent Steel and Allied Products

Karachi, December 17, 2024: VIS Credit Rating Company Limited (‘VIS’) has reaffirmed the sukuk ratings of Crescent Steel & Allied Products Limited (‘CSAP’ or ‘the Company’) at ‘A-’ (Single A Minus). 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 ratings action was announced on December 13, 2023.

CSAP, incorporated on August 1, 1983, as a public limited company listed on the Pakistan Stock Exchange (PSX), operates as a conglomerate with a primary focus on steel pipe manufacturing. The company’s registered office is in Lahore, while its principal office is located in Karachi. The steel segment remains the primary contributor to revenue, specializing in the production of large-diameter spiral welded pipes and various line pipe coatings, whereas the cotton and hadeed segments are currently non-operational. Altern Energy Limited has historically been a significant contributor to profitability through dividend income to the investment segment of the Company; however, this contribution is anticipated to cease from FY26 onwards after final dividends in FY25, due to the termination of the Power Purchase Agreement (PPA) of main subsidiary Rousch (Pakistan) Power Limited (RPPL) Limited.

CSAP issued a privately placed Sukuk of Rs. 800m to meet its working capital needs. The Sukuk has a tenor of three years with six equal installments of principal redemption starting from the 6th month of drawdown. The pricing of the issue is 6M-KIBOR plus 2% spread. Security structure of the Sukuk entails ranking charge on Fixed Assets/constructive mortgage charge. Moreover, a collection account is maintained with the collection Bank which will be funded for the entire installment amount 20 days prior to the payment date. Currently only two payments of the Sukuk remain with maturity in October 2025.

Assigned ratings take into account the business risk profile of the Company, reflecting the high industry risk associated with Pakistan's steel pipes sector. This assessment considers the sector's exposure to fluctuating demand, dependence on large-scale infrastructure projects, reliance on imported raw materials, and exposed to fluctuations in exchange rates and international commodity prices. The industry faces challenges such as low-capacity utilization, taxation challenges, and increases in gas and electricity prices.

Assigned ratings also consider the financial risk profile of the Company. Revenue growth was supported by the continuation of the K-IV Greater Karachi Bulk Water Supply Project, which mitigated exposure to raw material price volatility, aiding margins. Improvements in the capitalization profile were driven by reduced debt levels, cash generation, and profit retention. The liquidity position strengthened with better working capital management and lower working capital needs. However, 1QFY25 metrics depict pressure on profitability and coverage due to delays in raw material delivery for the K-IV project and reduced income from non-core operations. Coverage ratios in 1QFY25 were affected by lower Funds from Operations (FFO) and higher taxation under the Finance Act 2024.

Going forward, the assigned ratings will remain sensitive to the timely execution of the K-IV project and the addition of new contracts to sustain profitability and operational cash flows. The termination of the power purchase agreement of RPPL is expected to impact dividend income contributions. Maintenance of improved margins, coverage metrics, and a stable liquidity profile will remain a key consideration. Moreover, materialization of any diversification initiatives by the management will also provide support to assigned ratings.

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


Applicable Rating Criteria:
Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf
Rating the issue
https://docs.vis.com.pk/docs/Rating-the-Issue-Aug-2023.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 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .