The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Maintains Entity Ratings of Ghani Chemical Industries Limited, Assigns Negative Outlook

Rating Type Entity
(30-Oct-19 )
(30-Apr-19 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Negative Developing
Rating Watch - Yes

The Ghani Global Group of Companies recently underwent a scheme of arrangement which resulted in the transfer of the manufacturing undertaking, along with all assets and liabilities, of Ghani Global Holdings Limited (formerly “Ghani Gases Limited”) to subsidiary, Ghani Chemical Industries Limited (Ghani Chemicals). The previous ratings correspond to Ghani Gases Limited while the current rating corresponds to Ghani Chemical Industries Limited.

The ratings recognize Ghani Chemicals' prominent position in the industrial and medical gases sector. The industry largely possesses oligopolistic structure, benefiting the players. Recent slowdown in demand for industrial gases from key sectors, in line with the overall economic slowdown, has kept product prices depressed, reflected in a decline in the Company's margins at gross and operating level. Simultaneous increase in working capital needs on account of slow recovery from customers in the health sector led to higher short-term borrowings, which increased finance cost substantially, leading the Company to book a net loss for FY19. Resultantly, cashflows and coverages witnessed a downturn, highlighting financial risk despite moderate leveraging. Ghani Chemicals’ third 110TPD plant has been set up and is expected to commence commercial operations in 1HFY20. The Company will be taking on additional debt to make payment for the new plant, due in Dec-19, which may exert further pressure on coverages. Smooth functioning of the new plant and timely generation of incremental cashflows remains critical to the Company’s performance. Given the Group's expansionary stance and stressed financial performance, sponsors have committed to sustained vigilance and support, as extended in the past.
The ratings are dependent on the Company's ability to effectively utilize enhanced capacities. At the same time, management of financial risk, particularly debt coverages, remains important, wherein any further dilution would have negative implications for the ratings. Sustained market share and, in turn, improved margins would support ratings.

About the Entity
Ghani Chemical Industries Limited is an unlisted, public concern, incorporated as a private limited company in Nov-15 and subsequently converted to public status. The Company was established to set up a chemical manufacturing plant in Hattar Economic Zone. However, due to economic and political challenges, the project was postponed. Up till Jul-19, the Company had not started commercial operations. In Jul-19, as part of the Scheme of Compromises, Arrangement and Reconstruction undertaken by the Ghani Global Group of Companies, the manufacturing undertaking of Ghani Global Holdings Limited (formerly “Ghani Gases Limited”), along with all assets and liabilities, was transferred to Ghani Chemicals. The Company is a subsidiary (~99%) of Ghani Global Holdings Limited which is owned majorly by the Ghani Family (~56%).

Ghani Chemicals is engaged in the manufacturing, sale, and trading of medical and industrial gases and chemicals. The Company's overall capacity stands at ~330 TPD while its product slate consists of Liquid Oxygen, Liquid Nitrogen, Liquid Argon and Calcium Carbide. Ghani Chemicals’ four member board is majorly represented by members of sponsoring family: Mr. Masroor Ahmad Khan is the Chairman of the BoD while Mr. Hafiz Farooq Ahmad holds the office of CEO. They are assisted by a management team with extensive experience and a diversified skillset.

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.