Press Release

VIS Assigns Preliminary Rating to Sukuk of Agha Steel Industries Limited

Karachi, July 7, 2023: VIS Credit Rating Company Limited (VIS) has assigned preliminary instrument rating of ‘A+’ (Single A Plus) to the proposed Sukuk of Agha Steel Industries Limited (ASIL). The medium to long-term rating of ‘A+’ denotes good credit quality with adequate protection factors. Risk factors are considered variable if changes occur in the economy. Outlook on the assigned rating is ‘Stable’.

ASIL plans to issue a Sukuk of size Rs. 3.4b as a debt swap for the prepayment of the Company’s current outstanding Sukuk issue. The instrument will have a tenor of 4 years which includes a grace period of 1.5-years. The principal shall be paid in equal quarterly installments commencing from the 21st month after issuance. The proposed issue will be secured by a first pari-passu hypothecation charge over all present and future fixed assets of the Company with a margin of 25% as well as a first pari-passu equitable mortgage charge over the Company’s rights in immoveable property with a 25% margin. Additionally, the Company will be required to deposit one-third of the upcoming coupon payment each month in a Debt-Service Reserve Account (DSRA). To provide further reassurance to investors of timely payments, any shortfall in the same will necessitate cash equity injections by the Company’s sponsors, as per the Sponsor Support Agreement. The assigned ratings are strongly contingent on the unconditional sponsorship backing provided in the aforementioned agreement.

ASIL has outstanding entity ratings of ‘A/A-2’ (Single A/A-Two) with a ‘Negative’ outlook as of December 13, 2022. The ratings take into consideration the elevated business risk of the steel sector emanating from the country’s deteriorating macroeconomic conditions which have resulted in notable supply side constraints as well as significant demand suppression. The challenging business environment is reflected in the deterioration of the Company’s financial risk profile. Topline performance has declined in line with weakened demand while net margins also decreased further owing to financing and distribution costs despite uptick in gross margins. With declining profitability, debt-servicing capacity has been weakened necessitating the new Sukuk issue. However, capitalization indicators improved on the back of reduction in short-term debt as slowdown in business activity decreased working capital requirements. Going forward, recovery in profitability performance and enhancement of cash flows will be critical to ratings.

For further information on this rating announcement, please contact Ms. Asfia Aziz (Ext: 212) or the undersigned (Ext: 201) at 021-35311861-71 or email at info@vis.com.pk.



Sara Ahmed
Director


VIS Entity Rating Criteria: Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf

VIS Issue/Issuer Rating Scale:
https://docs.vis.com.pk/docs/VISRatingScales.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 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .