Press Release

Ratings of Fatima Fertilizer Company Limited

Karachi, August 26, 2019: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Fatima Fertilizer Company Limited (FATIMA) at ‘AA-/A-1’ (Double A Minus /A-One). The medium to long-term rating of ‘AA-’ denotes high credit quality coupled with strong protection factors. Moreover, risk factors may vary slightly with possible changes in the economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment, liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned rating is stable. The previous rating action was announced on December 22, 2017.

The assigned ratings take into account strong sponsorship profile as majority of the shareholding of the company is held by Fatima Group (FG) and Arif Habib Group (AHG) through their group companies and individual representatives. The business risk profile of FATIMA is also underpinned by well-diversified product portfolio. The company is involved in manufacturing and supply of Urea, Nitrogen Phosphate (NP), and Calcium Ammonium Nitrate (CAN) fertilizers through a dealer network of 4,863 retailers in 61 districts of Pakistan. The ratings also factor in positive earnings trajectory, improving cash flows generation, and decline in leverage indicators on a timeline basis. The ratings draw comfort from access to concessionary gas, which provides a cushion against the increasing gas prices.

FATIMA registered notable growth in net sales as the impact of a slight decline in fertilizer off-take was offset by higher selling prices. NP remained the leading revenue contributor, followed by Urea, and CAN. In addition, the improvement in gross profits was also led by strengthening of margins on the back of higher fertilizer prices and continued availability of concessionary gas. Liquidity position of the company is underpinned by healthy cash flow generation. Hence, financial metrics including cash flows in relation to total debt have largely remained within benchmark limits for the assigned ratings.

The ratings factor in proposed amalgamation of Fatimafert into FATIMA and acquisition of major fertilizer plants of Pakarab, which may take some time to complete. Fatimafert and Pakarab currently have negative gross margins, which may put a drag on profitability in initial years; the management however expects the deal to add value to the company from the benefits of synergies, cost efficiencies and better use of brands. The post-deal impact on financial profile of FATIMA with respect to coverages will continue to be tracked by VIS. Going forward, the development on Midwest Fertilizer Company would be a key rating driver, timeline for which is not confirm at this point in time.

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: Corporates (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