Press Release

JCR-VIS Assigns Initial Ratings of A-/A-2 to Aisha Steel Mills Limited

Karachi, October 2, 2012: JCR-VIS Credit Rating Company Ltd. has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Aisha Steel Mills Limited (ASML). Outlook on the assigned rating is ‘Stable’.

Having been established under a joint venture agreement between the Arif Habib Group and Metal One Corporation, ASML is the largest Cold Rolling Coil (CRC) mill in Pakistan with a capacity of 220,000 tons. ASML enjoys technical and sales related support from its sponsor, Metal One Corporation which is a subsidiary of Mitsubishi Corporation; the largest steel trading company in the world. The assigned rating takes into account the support of the two key sponsors. The plant commenced trial production in May 2012 while the company is anticipating capacity utilization of 70% in fiscal year 2013.

With an estimated annual demand of 580,000 tons of CRC steel in Pakistan, the company is hedged against demand side risks. Being a CRC manufacturer, the company also has a 10% duty advantage as compared to importers, resulting in higher margins thus giving ASML significant competitive advantage. Moreover, with the installation of the Electrolytic Cleaning Line (ECL), the company will become the sole supplier of high end CRC steel products. In order to strengthen market presence, the company has entered into agreements with eighteen distributors who will deal exclusively in ASML products.

The total cost incurred for the project amounted to Rs. 9.4b, of which, around 63% has been financed through debt. Given the leveraged capital structure and pricing of existing debt, finance cost will continue to be a drag on earnings in the initial years of operations. Cash flows are expected to improve as capacity utilization increases; only a nominal amount of principal payment is due in the on-going year. The assigned rating draws strength from the favorable working capital cycle whereby the company enjoys extended credit period with a shorter sales recovery cycle, enabling generation of surplus cash from working capital management.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 501) or Ms. Sobia Maqbool, CFA (Ext: 604) at 35311861-70 (10 lines) or fax to 35311873.

Jamal Abbas Zaidi
Deputy CEO

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 2012 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