Press Release

Ratings of Masood Textile Mills Limited

Karachi, June 21, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Masood Textile Mills Limited (MTM) at ‘A-/A-2’ (Single A-Minus/A-Two). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. VIS has also assigned instrument rating of ‘A’ (Single A) to the proposed secured & privately placed long-term Islamic certificates (Sukuk). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on June 29, 2018.

The assigned ratings take into account sound business profile of the company, with MTM being one of the largest knitwear exporters in Pakistan. The ratings also take into account presence of Chinese sponsorship in the company. MTM obtains synergy benefits from the said association in terms of technical expertise in the value added textile segment. The ratings draw comfort from healthy growth in net sales and largely stable profit margins, maintained liquidity position, and adequate capacity to meet financial obligations. However, the leverage indicators are considered to be relatively high.

MTM made further investment in Balancing, Modernization & Rebalancing (BMR) of plant & machinery during 9MFY19 in order to enhance its production capabilities and produce high quality value added apparel. Going forward, the company is projecting gradual improvement in profit margins owing to cost efficiencies and uptrend in sales of value added apparel which fetches higher price per unit. Recent rupee devaluation is expected to bode well for the company. FFO to total debt ratio remained unchanged as the impact of higher cash flows was offset by increased utilization of short-term borrowings.

MTM is planning to issue a Sukuk amounting Rs. 3.0b, inclusive of a green shoe option of Rs. 1.0b. The instrument will be redeemed in 14 equal quarterly payments, post expiry of grace period, on a quarterly basis. The rental rate of Sukuk is priced at 3-month KIBOR plus 2.0% p.a. The instrument is secured by first pari-passu hypothecation charge over-all present and future fixed assets with a margin of 25% and debt payment mechanism. The company will transfer receivables in a separate account latest by 25th of every month amounting to 1/3rd of the installment due (redemption + rental) in every quarter. The company will maintain separate account under lien of Trustee/Investment agent in favor of investors. As the proceeds will be utilized to partially repay the existing conventional debt and meet working capital requirements, the impact of Sukuk issuance on the leverage indicators will remain muted.

For further information on this rating announcement, please contact undersigned or Mr. Maimoon Rasheed at 021-35311861-70/ 042-35723411 or fax to 021-35311872-3.

Javed Callea

VIS Entity Rating Criteria Industrial Corporate (May 2019)

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 not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited