Press Release

JCR-VIS reaffirms ratings of Fatima Fertilizer Company Limited

Karachi, January 7, 2016: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Fatima Fertilizer Company Limited (Fatima) at ‘AA-/A-1’ (Double A Minus/A-One) with a ‘Stable’ Outlook. The previous rating action was announced on April 16, 2014.

The ratings take into account low business risk profile of Fatima emanating primarily from stable supply of major raw material (gas feedstock) along with lower feedstock prices leading to relatively higher margins. Ratings also factor in sound fertilizer sector dynamics in terms of favorable demand/supply situation. The company has also witnessed continuous improvement in coverages on account of declining debt levels and improving cash flows. Association of the company with Arif Habib Group and Fatima Group also remains a key rating factor.

The company plans to invest in a nitrogen based green field fertilizer project in the United States of America. Fatima is in the process of issuance of foreign currency bond of up to US $300m in the US debt market in order to finance its investment in the project. Going forward, leverage indicators are expected to trend upwards. The bond will have a tenor of 7 years with semi-annual coupon payments and a bullet payment of principal at maturity. The company is forecasting major repayment of local debt about five years prior to the bullet payment of foreign currency bond. Fatima’s internal cash flow generation ability may support repayment or refinancing of entire debt by that time. The project is expected to become operational by early 2020. Further support is anticipated from additional cash flows in terms of dividend income from the project. As a backup arrangement, the management is considering other options as well. Recently, Fatima also acquired 100% stake in Fatimafert Limited, formerly known as DH Fertilizers Limited.

The revamping and de-bottlenecking of the company’s ammonia plant is likely to be completed soon; which is expected to help in improving cash flows. Lower margins are anticipated in the coming years on account of imposition of Gas Infrastructure Development Cess (GIDC). Any project related inordinate delay or cost overrun will have adverse implication on the assigned ratings.

For further information on this rating announcement, please contact the undersigned (Ext: 501) at 021-35311861-71 or Mr. Maimoon Rasheed at 042-35723411-13 or fax to 021-35311872-3.


Javed Callea
Advisor

Applicable Criteria: Industrial Corporates (October 2003)
http://www.jcrvis.com.pk/images/IndustrialCorp.pdf

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