PACRA Assigns Preliminary rating to Masood Textile Mills Limited - PP Sukuk - PKR 3bln - TBI

The assigned rating of Masood Textile Mills Limited (“the Company” or “MTM”) reflects the prominent profile of the Company in the textile industry of Pakistan. MTM is a full vertically integrated textile unit with high-end quality standards of manufacturing facility & production processes. The business strength of MTM lies in the customized production of high-value-added garments. The business sustainability takes comfort from the MTM's long-term association with well-established and stable international brands as their top clientage, including key players like JCPenny, Hugo Boss, Zara, Marks & Spencer, Adidas, Amazon, Sears etc. The Company's top line has shown an annual growth rate of 11% and stood at PKR 60.1bln as of FY23. During 9MFY24, the sales of MTM was PKR 44.3bln mainly dominated by the export segment. The net profitability of the Company was recorded at PKR 1.9bln during 9MFY24 (FY23: PKR 2.7bln). The Company gradually expects to induce incremental growth in dollar terms up to USD 100mln. The Company's working capital requirements are primarily met through short-term borrowings (STB) as it is a highly intensive working capital business. The Company is expected to inject further capital of PKR 2bln via the right issue of PKR 4bln. The Company has maintained a leveraged capital structure, however, over the years the leveraging of the Company has reduced.
The efficient management of inflated finance cost risk while fueling growth through STB remains critical. The rating of the instrument captures the strength of the security structure, primarily from the FPA mechanism.

About the Entity
MTM is a public listed company incorporated in 1984. Ms. Nazia Nazir w/o Mr. Shahid Nazir Ahmad has an ownership stake of ~30.16%, Chinese investors cumulatively hold a 37.09% stake and the remaining shareholding mainly vests with National Bank (6.7%), NIT and ICP (3.29%) & general public (~9% ).

About the Instrument
Masood Textile Mills Limited (“MTM” or the “Issuer” or the “Company”) will issue a Rated, Privately Placed & Secured, Islamic Certificate ("Sukuk") of PKR 3,000mln (inclusive of a green shoe option of PKR 1,000mln) in Sep-24 to finance the Company’s permanent working capital requirements. The Sukuk will be secured by way of a First Pari Passu hypothecation charge over all present and future Fixed Assets (excluding land and building) of the Company present on the Specific Properties (excluding assets with specific charges in favour of a creditor) with 25% margin. The Company shall also establish a Finance Payment Account (“FPA”) with the Bank prior to Facility Effective Date (“FED”) which will be held under exclusive lien in favour of the Participating Institutions. During each quarterly period, the Company shall deposit an amount equivalent to the 1/3rd of the outstanding installment amount each month into the FPA in such way that the aggregate amount available in the FPA 10 days prior to the upcoming installment due date. The tenor of the instrument will be 5 years from the date of issue including 6 months grace period. Profit will be paid quarterly in arrears on the outstanding balance of the issue amount at the rate of 3MK+1.75%. Principal repayment will be paid in 18 equal quarterly installments till the maturity of the instrument in Sep-29.