Press Release

JCR-VIS Assigns Preliminary Rating to the Proposed Sukuk issue of Agha Steel Industries Limited

Karachi, April 25, 2018: JCR-VIS Credit Rating Company Ltd. (JCR-VIS) has assigned preliminary rating of ‘A+’ (Single A Plus) to the proposed Sukuk issue of Rs. 5 billion (inclusive of a Green Shoe Option of Rs. 1 billion) of Agha Steel Industries Limited (ASIL). Outlook on the assigned rating is ‘Stable’. The preliminary rating will be converted to a final rating upon review of signed legal documents. The proceeds of the Sukuk will be utilized for retirement of existing long term debt and to fund planned expansion. JCR-VIS has assigned an entity rating of A/A-1 to ASIL.

The assigned ratings incorporate ASIL’s position as a top-tier player in the long steel sector enjoying strong brand name and recognition, healthy financial risk profile and strong debt servicing mechanism for the Sukuk. Ratings also reflect high business risk profile of the sector as evident from expected increase in competition post capacity expansion by established existing and new players (Aggregate capacity of established players increasing by around 3(x)), significant reliance of the sector on duty protection and cyclical nature of the industry. However, these factors are partially mitigated by healthy demand outlook due to ongoing construction activities and demand from large infrastructure projects.

Financial profile derives support from double digit growth in profitability, strong debt servicing ability, and healthy liquidity profile. The company’s superior gross margins vis-à-vis competitors has resulted in higher cash flow generation which partially mitigates the projected increase in gearing levels post Sukuk issuance. Planned Initial Public Offering in the latter half of the ongoing year will facilitate in reducing leverage indicators. However, continuity of high leverage indicators beyond benchmark for the assigned ratings may trigger a rating review.

Rating draws strength from the collection account mechanism and its strict implementation envisaged for payment of the Sukuk through which 70% of the inflows of the company will flow through designated collection accounts and will be used to fund the debt payment account. Even after significantly sensitizing for lower than projected revenues and margins, cushion in debt servicing is projected to remain adequate

For further information on this rating announcement, please contact the undersigned (Ext: 201) or Mr. Jamal Abbas Zaidi (Ext: 207) at (021)35311861-70 or fax to (021) 35311872-3.

Javed Callea

Applicable Rating Criteria: Industrial Corporates (May 2016)

Applicable Rating Criteria: Instrument (June 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-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. JCR-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. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-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 2018 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited