Press Release

VIS Assigns Initial Ratings to OBS Pakistan (Private) Limited (OBS-Pak)

Karachi, September 23, 2022: VIS Credit Rating Company Ltd. (VIS) has assigned initial entity ratings of ‘A/A-2’ (Single A /A-Two) to OBS Pakistan (Private) Limited (OBS-Pak) and preliminary rating of A+ (Single A plus) to the proposed Sukuk issue of Rs. 5b. Long-term rating of ‘A’ signifies good credit quality with adequate protection factors. Risk may vary slightly from time to time because of economic conditions. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’.

OBS Pakistan (Private) Limited (OBS-Pak) has entered into an agreement with Viatris Inc. and Pfizer Inc. to acquire 18 pharmaceutical brands (25 active SKUs) which were currently being marketed by Pfizer Pakistan Limited. The capital requirements for this acquisition has been estimated at Rs. 13.33b which will be financed through a 75:25 Debt: Equity ratio. The acquisition is being conducted through OBS-Pak, a Special Purpose Company (SPV) which will be a subsidiary (85%) of AGP Limited (AGP).

Assigned ratings take comfort from the Parent Company’s (AGP) established market position, long track record in the pharmaceutical industry and the resulting operational, managerial and financial support available to OBS Pakistan (Both from AGP and projected cash available at the holding Company level). Furthermore, business risk profile is supported by non-cyclical nature of the industry and steady demand growth.

The company intends to raise up to Rs. 5.0b for the acquisition through a Sukuk issue having a tenor of 6 years (including 18 months grace period). Principal amount will be redeemed through eighteen consecutive, fixed, quarterly installments with quarterly profit payment frequency. Security structure of the Sukuk entails exclusive hypothecation charge on future fixed assets of OBS-Pak, shares of AGP, Corporate Guarantee from AGP for the Principle and Profit amount, revenue collection account and finance payment account. Ratings of the instrument is notched up backed by AGP providing a corporate guarantee for the entire amount of the Sukuk (principal and profit).

Ratings assigned take into account the inelastic demand nature of the product portfolio being acquired along with high relative market share and brand value enjoyed by major products (top three include- Norvasc, Xanax, Cardura). Ratings also factor in concentration in product portfolio and therapeutic area coverage. Gradual growth in profitability indicators is expected on the back of expected increase in prices and uptick in volumetric sales planned through organic growth of current portfolio along with line extensions over the rating horizon. Albeit projected improvement in liquidity indicators over the long-term, pressure is seen in the same over the rating horizon with DSCR reported close to 1.00x. With elevated debt levels to finance the acquisition, leverage and gearing levels are expected to report on the higher side. However, the same are expected to gradually decrease through augmentation in equity base by profit retention and debt repayment. Ratings remain dependent on, continued availability of corporate guarantee maintaining sound debt servicing cushion and reducing leverage indicators in line with projections over the rating horizon.

For further information on this rating announcement, please contact the undersigned (Ext. 306) or Ms. Asfia Aziz (Ext: 212) at 021-35311861-70 or fax to 021-35311873.

Faryal Faheem
Deputy CEO

Applicable Rating Criteria: Industrial Corporates (August 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 2022 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .