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The Pakistan Credit Rating Agency Limited
Press Release

Date
05-Aug-21

Analyst
Timnat Thomas
timnat.thomas@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Rating of Pak Arab Fertilizers Limited | TFC

Rating Type Debt Instrument
Current
(05-Aug-21)
Previous
(21-Aug-20)
Action Maintain Maintain
Long Term A- A-
Short Term - -
Outlook Developing Developing
Rating Watch Yes Yes

Pakistan has an agrarian economy, thus fulfils around ~ 84% of its fertilizer requirement through local production while the remaining is met through imports. The Country's total fertilizer production capacity sails around ~ 7.1mln MT of Urea and CAN and ~ 1.7mln MT of DAP, NP, and NPK. In 5MCY21, Urea’s offtake stood at 2.2mln MT. Meanwhile, DAP’s offtake stood at 423,000MT. The overall margins of the industry registered a healthy growth on the gross and net levels due to unchanged gas rates and effective cost controls despite inflationary pressures.
The ratings reflect Pak Arab Fertilizers Limited's ('Pak Arab' or 'the Company') association with strong business Groups namely, Fatima Group and Arif Habib Group. As per the Group level strategic plan, the production and operating plants of Pak Arab, including Urea, Ammonia, Nitric Acid, NP, and CAN, have been completely transferred to Fatima Fertilizer Company Limited ('Fatima Fertilizer') on Sep-20. The Company has received ~ 87% of the consideration, in this regard, from Fatima Fertilizer till Jun-21. The remaining instalments are expected to complete by CY21. Currently, the Company's topline comprises DAP trading and sale of Liquid Carbon dioxide (LCO2), along with other non-core services. Pak Arab's margins are squeezed and are expected to remain low. The Company's financial risk profile is characterized by stressed coverage ratios. While the working capital cycle remains stable. Pak Arab has a highly leveraged capital structure with considerable borrowings on its balance sheet. The ratings draw comfort from the sponsor's financial strength, guidance on managing interest rate fluctuation, and demonstrated ability to provide support if needed. The Company has been assigned 'Rating Watch' with a 'Developing' outlook as the profitability and cash flows are expected to remain under stress. Developing a sizeable and sustainable revenue stream after asset sale to Fatima Fertilizer remains critical for ratings. PACRA will monitor the situation closely and update the ratings accordingly.
The ratings are dependent on the management's ability to manage business risk while improving business margins in prevailing challenges. Going forward, generating sustainable operational cashflows is important. Meanwhile, a prudent financial strategy to meet financial obligations remains imperative. Continued support from Fatima Fertilizer, technically and financially, is critical for ratings.

About the Entity
Pak Arab Fertilizers Limited ('Pak Arab' or 'the Company') is a Public Unlisted Company. The Company engaged in importing and trading of DAP, manufacturing and selling Liquid Carbon Dioxide (LCO2), along with providing Operations & Maintenance services.
Pak Arab is owned by Arif Habib Group (50%), Fatima Group (41%), and Fazal Group (9%). The Company's Board is chaired by Mr. Arif Habib. While Mr. Fawad Ahmed Mukhtar heads the Company as its CEO. He is aided by a team of experienced professionals.

About the Instrument
Pak Arab Fertilizers Limited (“Pak Arab” or the “Issuer” or the “Company”) issued a Privately Placed Term Finance Certificate ("TFC") of PKR 450 mln. The tenor of the instrument is 5 years. The proceeds are being utilized for financing ongoing capital expenditure and related expenses including fulfilment of stores and spares requirements of the Company. Profit is being paid semiannually in arrears on the outstanding principal amount at the rate of 6 M KIBOR + 1.9%. Principal repayment is being paid in 6 equal semi-annual instalments. The TFC is secured by the first pari passu charge on the Company’s present and future fixed assets.

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.