Press Release
VIS Downgrades Sukuk-3 Instrument Ratings of Agha Steel Industries Limited
Karachi, April 01, 2024: VIS Credit Rating Company Limited downgrades instrument ratings to the Sukuk 3 of Agha Steel Industries Limited ('ASIL' or 'the Company') to ' BB-' (‘Double B minus’), commensurate with entity ratings. Medium to long term rating of 'BB-' indicates obligations deemed likely to be met. Protection factors are capable of weakening if changes occur in the economy. Overall quality may move up or down frequently within this category. Outlook on the assigned ratings have been changed to 'Negative' from 'Stable'. Previous Rating action was announced on December 21, 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).
On December 29, 2023, an unfortunate accident lead to suspension of plant operations. The management took swift measures to restore production which was partially restored by middle of January 2024. Management estimates around a two-quarter recovery period for the rolling mills to fully resume operations.
Rating downgrade stems from the operational interruption in January, and subsequent constrained production capacity, significantly impacting on the Company's financial profile and its ability to meet its financial obligations. Given the recovery time needed, resumption of normal debt servicing would take some time. In the meanwhile, the management has opened dialogue with lenders for a suitable debt structuring aimed at making the plant fully operational to support its operations and revenue generation for debt servicing as negotiated with the lenders.
Going forward, ratings will be sensitive to the ongoing restructuring process and will be revisited upon its outcome. Moreover, availability of sponsor support to meet any shortfall in debt servicing over the rating horizon will also be an important consideration for future reviews.
For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.
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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