PACRA Assigns Initial rating to Masood Textile Mills Limited - PP Sukuk - PKR 2bln - Sep-24

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 Hugo Boss, JC Penney, Calvin Klein, Zara, Marks & Spencer, Adidas, Amazon, Sears etc. MTM rationalizes its product mix strategy by shifting from basic to high-value-added, fashioned articles to align its business model with international market demand trends. This ameliorates final product pricing in dollar terms, as reflected in improved gross margins. However, the recent disruption in the supply chain matrix has impacted the business volumes and net profitability of the Company. The Company's management is mindful of regaining momentum after the temporary performance downturn. To augment MTM's liquidity position; the management has planned to inject equity of PKR 2bln during FY25. 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 maintained a highly leveraged capital structure.
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”) has issued a Rated, Privately Placed & Secured, Islamic Certificate ("Sukuk") of PKR 2,000mln 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 has established a Finance Payment Account (“FPA”) with the Bank prior to Facility Effective Date (“FED”) which is 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 amounts 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 is 5 years, inclusive of a grace period of up to 9 months. 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.