Muhammad Atif Chaudhry
PACRA Affirms Preliminary Ratings to Mughal Iron & Steel Industries Limited | PP Sukuk | PKR 5bln | TBI
|Rating Type||Debt Instrument|
Mughal is a known name in the steel industry. The Company has a diversified product slate as its operating both in ferrous & non-ferrous segments. Furthermore, the establishment of strong brands like ‘Mughal Supreme’ gives a competitive edge to the Company. The reported profitability for June 22 showed significant growth from previous years primarily due to an increase in sales prices as volumes in the ferrous segment declined slightly. Margins witnessed a slight decline as the impact of an increase in raw material prices and other input costs were not completely transferred into sale prices. The overall debt of the company has been witnessing an increasing trend on account of ongoing expansions and supplementary cushion for the short comings of working capital, due to which short-term borrowing contributed a significant portion to the total debt. While the Company is also planning to finance its short-term working capital needs through the issuance of unsecured commercial papers. Furthermore, Mughal Iron & Steel Industries Limited | PP Sukuk | PKR 5bln was intended to be issued during FY22. But, considering the stressed economic conditions the instrument is yet to be issued and expected to be issued soon. However, comfort for assingned rating drawn from a strong equity base of PKR 20.8 billion driven by healthy profits.
The ratings are dependent upon the company’s ability to sustain its healthy business profile amidst strong competition, herein, effective and prudent management of financial risk indicators remains important. Moreover, upholding of governance framework is vital.
Mughal Iron & Steel Industries Limited (Mughal), is a public limited company incorporated in 2010 and is primarily engaged in the manufacturing and sale of billets, girders, and rebars. The Company has expanded its product base, by entering the non-ferrous segment. Currently, a nine-member BoD is monitoring the overall functioning under the chairmanship of Mr. Mirza Javed Iqbal. Mr. Khurram Javaid is the execution lead as CEO and the driving force behind the Company. An able management team assists him.
Mughal is planning to issue ‘Listed, Secured & Privately Placed Long Term Islamic Certificates (Sukuk) up to PKR 5Bln (inclusive of a Green Shoe option of PKR 2Bln). The tenor of Sukuk will be 5 years. Sukuk will be priced at 3MK+1.3% p.a. with profit payable quarterly in arrears on the outstanding principal amount. Debt Service Reserve Account ("DSRA") will be maintained equivalent to the one full upcoming instalment (principal + profit) under lien of the Invest Agent throughout the tenor of the facility from the date of completion of grace period. Further, during the grace period DSRA will be build up and maintained for one profit payment. Other then DSRA a debt payment account (DPA) will be maintained with agent bank. One-third of the upcoming installment (principal plus profit) will be built up each month by 25th day such that entire upcoming installment is deposited in DPA by 25th day of 3rd month. In case of DPA not fulfilled, Investment Agent would have full recourse to DSRA which will be utilized in case such need arises. Security Structure is first pari passu charge over-all present and future movable assets with a margin of 25% (in accordance to the Issue amount).