Karachi, December 21, 2016: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Fatima Fertilizer Company Limited (FFCL) at ‘AA-/A-1’ (Double A Minus/A-One). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on January 07, 2016.
The ratings assigned to FFCL take into account its prominent market share in the fertilizer industry and its association with an established and renowned conglomerate. The ratings also draw comfort from the stable availability of raw material at concessional tariff leading to strong product margins, ongoing operational efficiencies, presence of a seasoned management team which has instituted a sound internal controls infrastructure.
While sales performance remained weak during first half of the ongoing year, volumetric sales picked up pace in the third quarter owing to lower product prices following the implementation of Farmer Incentives Plan. Lower product prices reflected in reduced margins, however margins continue to remain healthy. Going forward, sales volumes are expected to improve on account of lower product prices.
During the ongoing year, FFCL has issued a Sukuk amounting to Rs. 10.5b for a period of five years; proceeds from Sukuk were used to fully prepay the senior syndicated facility. Issuance of a long term sukuk has extended the repayment tenor of the long term debt while also offering lower finance cost. Leverage indicators exhibited marginal increase in line with higher borrowings; however the impact of the same was mitigated on account of strong capitalization and positive momentum in earnings.
The company plans to invest in a nitrogen based green field fertilizer project, Midwest Fertilizer Company (MFC), in the USA. FFCL is in the process of issuance of foreign currency bond of up to US $300m in the USA debt market in order to finance its investment in the project. The bond will have a tenor of 7 years with semi-annual coupon payments and a bullet payment of principal at maturity. FFCL internal cash flow generation may support repayment while further support is anticipated from additional cash flows in terms of dividend income from MFC. As a backup arrangement, the management is considering other options as well.
For further information on this rating announcement, please contact the undersigned at 021-35311861-70 (Ext: 208) or Mr. Waqas Munir, FRM at 042-35723411-13 (Ext: 8010).
Mohammed Khalid Ali
Applicable Rating Criteria: Industrial Corporate (May 2016)
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