The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Maintains the Entity Ratings of Usman Steels (Pvt.) Limited

Rating Type Entity
(20-Jan-23 )
(21-Jan-22 )
Action Maintain Initial
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Incorporated in April 1978, Usman Steels (Pvt.) Limited is engaged in the business of ship breaking. The Company’s site spread over four ship breaking yards, all around costal line of Gaddani Beach, District Lasbella, Balochistan. Usman Steels purchases ships directly from ship owners or through Ship brokers for recycling, to retrieve multipurpose ship steel plates and steel scrap to fulfill rapidly increasing steel raw material demand in domestic market. The South-Asian ship-breaking industry, including India, Bangladesh, Pakistan and Turkey, are countries where majority of the ship-breaking activity has been happening. Among all, Pakistan ship-breaking yards hold advantages of having favorable geography and weather, cheap manpower making it preferred destination for ship-breaking activities. The ratings are largely supported by the long-standing experience of the group in diversified sectors and company’s sponsor’s, who have nearly three decades of experience in the ship breaking business. The Company’s operations and profitability are highly exposed to the fluctuations in ship prices along with exchange rates and are dependent on prevailing scrap prices, which could result in poor realizations, irrespective of the availability of improved quality of vessels in the market. Audit for the current year end CY22 is under process. And as per Dec 2021 financial statements company's exposure to banking lines are solely working capital related and pledged against the inventory - ships. There are no long term specific bank borrowings to date therefore credit risk has already been minimized and secured against the available stock. The ratings reflect Company's medium-scale operations, as highlighted by revenue of PKR 10,816mln in CY21 (CY20: PKR 3.5bln). The increase in revenue is mainly driven by rising steel prices along with the increased demand of steel in the local market. Company has taken a short-term borrowing line of ~PKR 6.5bln including, funded and non-funded credit facilities against charge on current assets of the company.
The uncertain economic condition and availability of ships considering limited foreign exchange reserves resulting in decline in the scale of operations, is a concern, which is cushioned by the fact that financing requirement also become low in such times.

About the Entity
Usman Steels (Pvt.) Limited (‘Usman Steels’ or ‘the Company’) was incorporated in April, 1978 as a Private Limited Company. The Company’s site spread over four ship breaking yards, all around costal line of Gaddani Beach, District Lasbella, Balochistan. Till today the Company has broken out scores of unserviceable vessels, including 3 submarines. The Company’s ownership resides with the family of Mr. Ikhlaq Memon. The major stake is with Mr. Ikhlaq Memon (61%). The remaining stake resides with Mr. Usman (33%), Ms. Salma Ikhlaq (3%) and Mr. Ishaq (3%). Mr. Muhammed Ikhlaq Memon: is the Chief Executive Officer of M/s. Usman Steels (Pvt.) Ltd and also holds the position of Chairman of Pakistan Ship Breaking Association (P.S.B.A). Mr. Ikhlaq owns ~50% shareholding in Venture Green Capital (VGR), that is also involved in ship breaking business.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.