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8/3/2019 PACRA Rating Report Engro Corp August 2010
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8/3/2019 PACRA Rating Report Engro Corp August 2010
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The Pakistan Credit Rating Agency LimitedHOLDING COMPANY
August 2010 www.pacra.com
RATING REPORT CONTENTS PAGESummary Report 1
Detailed Report:
Ratings 2 Profile 2 Ownership 3 Governance 3 Management 5 System and Controls 6 Performance 6 Capital & Funding 9
ANNEXURES
Financials I
Glossary II
Standard Rating Scale III
ENGRO CORPORATION LIMITED
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The Pakistan Credit Rating Agency Limited
HOLDING COMPAN
RATINGS (AUGUST 2010)
ENGRO CORPORATION LIMITED
ECL]
Assigned to Engro Chemical Pakistan Limited
May May June June May
2006 2007 2008 2009 2010
AA
AA-
A+
AA+
FINANCIALDATAPKR (mln)
1H10* Dec-09* Dec-08*
otal Assets 152,699 132,105 80,802
quity 31,942 29,344 23,548
ong Term
orrowings89,244 84,142 40,768
Current Borrowings 14,329 3,678 4,953
Net Turnover 33,724 58,152 40,937
BITDA 6,898 9,018 8,072
ROE % 10.0 14.9 17.9
BITDA Interest
Cover (X)
4.1 4.1 4.6
otal Debt/ (Total
Debt + Equity)76.4 75.0 66.0
Consolidated figures for Engro Group
ANALYSTS
Arsalan Ahmed
+92 42 35869504
hangeer Hanif
+92 42 35869504
TFCS ISSUE
ECL is in the process of issuing TFCs of
PKR 4,000mln (including a green shoe
ption of PKR 2,000mln). The instrument
will have a tenor of 3 years, carrying fixed
rofit rate of 14.5% p.a., paid semi
nnually. The principal payment will be in
he 3rd year or early through put option. In
ase put option is exercised the investor will
ave to pay a service charge of 2% on the
rincipal. The TFC is secured by way of
irst ranking floating charge over all the
resent and future movable properties
including investments) of Engro
Corporation Limited but excluding presentnd future trademarks and copyrights of
ECL and excluding its shares in Engro
RATING RATIONALE AND KEY RATING DRIVERSThe ratings reflect ECLs articulated corporate center mandate aimed at creating value in excess of
sum of its parts. The salient features of this mandate include development of a central pool of execu
management capable of managing independent businesses, designation of a group CEO, strengthe
of the governance framework with independent directors, and a comprehensive framework
monitoring the performance of subsidiaries. The ratings incorporate ECLs diversified investmportfolio including a stable, indeed growing, fertilizer presence, wherein business risk is low. Altho
some ofthe companys subsidiaries are currently in the growth phase, a sustained dividend stream f
established enterprises supplements ECLs financial profile.These ratings are dependent upon the companys ability to implement a robust mechanism for provi
strategic guidance to all group companies while maintaining an effective control environm
Moreover, timely completion of the urea expansion project without significant delays, coupled w
growth and resultant profitability in other businesses, remains important. Meanwhile, effec
management of the groups financial risk, especially during the period prior to the planned gradualleveraging, remains critical for the companys ratings.
ASSESSMENTIncorporated in 1965, Engro Chemicals Pakistan Limited (ECPL) was renamed as Engro Corpora
Limited (ECL) on January 01, 2010, following a demerger of the fertilizer business to Engro Ferti
Limited (EFL). All assets/ liabilities of the fertilizer business have been transferred to Engro Fertil
with Engro Corporation carrying equity investments in subsidiaries and associates at cost. En
Corporation is now the holding company for all strategic investments including fertilizer operati
Engro Corporation has irrevocably and unconditionally guaranteed to each secured party, as def
under the pertinent finance documents, punctual performance by Engro Fertilizer of all its obligatiand undertakes that whenever Engro Fertilizer does not pay any amount when due, it must immedia
on demand by the inter-creditor agent (National Bank of Pakistan), pay that amount as if it were
principal obligor in respect of that amount.
As a holding enterprise, ECL aims to benefit from a more focused approach towards stratmanagement and enhanced governance. The company generates a monthly MIS Dashboarproviding a structured breakdown of information on predetermined key indicators for each group en
The company has also formulated an Executive Committee (ExCom), comprising Group CEO, Gr
CFO, Head Human Resource and all designated CEOs of subsidiaries/ associates. ExComs prim
function is to assess managerial qualities, while augmenting decision-making and consensus building
ECLs investment book (cost: PKR 25,352mln) include interests in companies engaged in (i) fertili(Engro Fertilizer Limited 100%), (ii) food & allied (Engro Foods Limited 100%, (iii) poproduction (Engro Energy (Pvt.) Limited 95% and Engro Powergen (Pvt.) Limited 100%), commodity export/ import (Engro Eximp (Pvt.) Limited 100%), (v) automation & con
engineering (Avanceon Limited 63%) (vi) PVC resins (Engro Polymer & Chemicals Limited 5and (vii) Storage (Engro Vopak Terminal Limited50%).
Engro Fertilizer Limited is currently the second largest producer of urea in the country (~22% asdesigned capacity). EFL, at present, is undergoing expansion (Enven 1.3), with added capacity
1,300,000tons expected to come online, with some delay, in 4Q10. Engro Foods Limited, engaged in
manufacture of dairy products, is currently in a growth phase and reported a loss of PKR 179mln
1H10. Engro Energy Limited, a 217MW combined cycle power plant, initiated commercial produc
in March 2010, as per the revised plan, posted a profit of PKR 379mln for 1H10. Engro Eximp (P
Limited, engaged in commodities import/export, reported a profit of PKR 973mln in 1H10. Avanc
Limited, acquired in 2007, provides process control solutions to industrial units and posted a los
PKR 94mln in 1H10. Engro Polymer & Chemicals Limited, the only listed investment, has recently
commissioned its VCM production (backward integration) after a lag due to fire incident in Decem
The plant is expected to reach its optimum capacity by end-3Q10. The company reported a loss of P
449mln in 1H10. Engro Vopak Terminals Limited reported a profit of PKR 518mln in 1H10.
The company envisages continued focus on three core sectors: 1) Fertilizer, 2) Food and 3) Enewhile diversifying into other lucrative business opportunities. The role of ECL will be limited in teof operational decision making but more on the lines of oversight and providing strategic direction
terms of profitability, the companys income stream would stem from dividends received frominvestments and, therefore, expected to be highly correlated to the performance of group entities
their ability to generate positive cash flows. Total subsidiary income in 2009 amounted to P
1,885mln (2008: 2,605mln) emanating from Engro Eximp (Pvt.) Limited (PKR 1,435mln) and En
Vopak Terminal Limited (PKR 450mln). Going forward, Engro Energy is expected to contri
towards ECLs dividend income, followed by Engro Fertilizer in 2011. Engro Polymer would fosuit once its VCM plant is completely functional.
With the issue of TFCs of PKR 4,000mln, ECLs standalone capital structure would experieleveraging. This adds to financial risk profile of the group as its consolidated debt (including short
debt)has crossed PKR 100bln mark by end-June10 with very high level of gearing. Nevertheless, ma
with the commissioning of Enven 1.3, the debt is expected to gradually decrease over the medium te
PROFILE
Engro Corporation Limited (formerly Engro Chemicals Pakistan Limited) is listed on all three sexchanges of the country. Dawood Group holds a majority stake (~48%) in ECL. ECL has a thirmember board. The chairman of the board is Mr. Hussain Dawood, a well known professional veteran.
Entity NEW PREVIOUS*
Long Term AA AA
Short Term A1+ A1+
Secured
TFC I
PKR4,000mln AA -
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HOLDING COMPANY
1.RATINGSVery high credit
quality
ENTITY NEW PREVIOUS*
Long Term AA AA
Short Term
TFCsPKR 4,000mln
A1+
AA
A1+
-
* Assigned to Engro Chemical Pakistan Limited.
2.PROFILE
ECPL renamed asEngro Corporation
Limted (ECL)
A diversifiedconglomerate
Significant fertilizerpresence
2.1 Incorporated in1965, Engro ChemicalPakistan Limited was
renamed as Engro
Corporation Limited
(ECL) on January 01,
2010, following a
demerger of the fertilizer
business to Engro
Fertilizer Limted (EFL).
ECL is listed on all the
stock exchanges of the
country. The share price
movement has been largely consistent with the market trend since the reopening of tradin December 2008. The chart demonstrates ECLs strong capacity to raise sizable capitin times of any contingency, as evidenced in the companys history as well. ECLs heaoffice is located in Karachi.
2.2 ECL is a holding company mainly responsible for overseeing and managing thperformance of its subsidiaries and associates, covering business interests in fertilizer
food and commodities, power, engineering, chemicals and storage. In order to facilitat
the transition towards the holding company structure, the company sought structura
recomendations from McKinsey & Company; a reputed management consultancy firm
As a result of the transition, the ECL aims to seek benefit from a more focused approac
towards strategic management and enhanced governance. The chart below displays ECL
subsidiaries and joint venture/ associated companies along with the companys ownershiand investment (at cost) in each:
June June April May May June June May
2 00 3 2 00 4 2 00 5 2 00 6 2 00 7 2 00 8 2 00 9 2 01 0
AA
AA-
A+
AA+
70% 30%
Engro Foods Supply Chain
(Pvt.) Ltd.
100%
(PKR 523mln)
Wholly
owned
b i d
i
Subsidaries
Engro Powergen Ltd.
100%
(PKR 387mln)
Engro Vopak Terminal
Ltd. (Joint Venture)
50%
(PKR 450 mln)
Engro Polymer &
Chemicals Ltd.
56%
(PKR 3,651mln)
Avanceon Ltd.
63%
(PKR 382mln)
Engro Energy Ltd.
95%
(PKR 3,040mln)
Engro Corporation Limited
as at Jun10
Engro Foods Ltd.
100%
(PKR 6,216mln)
Engro Fertilizers Ltd.
100%
(PKR 10,739mln)
Engro EXIMP Ltd.
100%
(PKR 480mln)
Engro Management
Services Ltd.
100%
(PKR 2.5mln)
-
80
160
240
320
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Volume(Thousands)
Stock Price - Volume chart
Volume (L.H.S.) Closing price (R.H.S.)
KSE - 100 Linear (Closing price (R.H.S.))
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HOLDING COMPANY
38%
10%
3%3%
18%
28%
48%
Shareholding Patternas at Dec09
Dawood Hercules Chemicals Ltd Associated Companies
Direct ors & Rela ted Pa rt ie s Pub lic Sect or Co rp ora tio ns
Financial Institutions Others
2.3 ECL and its subsidiaries have won numerous awards from the Karachi StocExchange (KSE) and the Management Association of Pakistan. In addition, the compan
attained 3-Star rating in Environment Performance benchmarking carried out by Britis
Safety Council as well as Investor Relation Award by the CFA association of Pakistan. I
addition, Engro is ranked as the top Pakistani company for corporate social responsibilit
in the first Asian Sustainability Rating 2009.
3.OWNERSHIP
Majority owned byDawood Group
Dawood Groupadiversified business
group
3.1 Dawood Group (DG) holds amajority stake in ECL through direct
and indirect shareholding. DG, a
distinguished and trusted name in
Pakistan, traces its origins back to
almost a century ago. The current
shareholding pattern of the company
is shown in the graph.
3.2 Dawood group is primarilyengaged in the business of fertilizer,
textiles, technology business and
insurance. The journey of the group
started in 1949 with the foundation
of first group company -
Lawrencepur Woollen & Textile Mills. The group made inroads into the fertilizer secto
by setting up Dawood Hercules Chemicals Limited (DAWH) in 1968. DAWH, listed o
Lahore and Karachi Stock Exchange, has a nameplate capacity of 445,500MT p.a. wit
approximately 115% capacity utilization at end Dec09. The company manages one of th
highly recognized brands among fertilizer communityBubber Sher. With the passage o
time, some other group concernsDawood Cotton Mills Limited, Burewala Textile MilLimited, Central Insurance Company, Dawood Corporation (Pvt.) Limited, and DiloLimited were also founded. In 2004, all the textile companies of the Dawood group wer
merged in a single entity - Dawood Lawrencepur Limited. During the same year, th
group also acquired majority stake in Inbox Business Technologies (Pvt.) Limited, a
information technology firm. The group runs a small brokerage house by the name o
Elixir Securities Pakistan (Pvt.) Limited.
4.GOVERNANCE
Experienced BoDmembers with
diverse professional
background
Four independentdirectors
Strong committeesstructure
4.1 ECLs board of directors comprises thirteen members including the CEO. Apafrom the CEO, there is equal representation on the board: four members from the Dawoo
Group, four from the companys management and four independent directors. Thpertinent details of all board members are given as follows:
No. Name Key Experience Representative Committees
1Mr. Hussain Dawood
[MBANorthwesternUniversity, USA]
ChairmanEngro Corporation Limited
ChairmanDawood Hercules Chemicals Limited
ChairmanPakistan Poverty Alleviation Fund
DGChairman - Boar
Compensation
Committee
2
Mr. Samad Dawood
[BScUniversity CollegeLondon, UK]
CEODawood Corporation Limited
ChairmanCentral Insurance Company Limited
DirectorSui Northern Gas Pipelines Limited
DG Audit Committe
3
Mr. Shahzada Dawood
[LLB & MA Global Textile
MarketingUniversity of
Philadelphia, USA]
CEODawood Hercules Chemicals Limited
ChairmanDawood Lawrencepur Limited
DirectorNational Mines (Pvt.) Limited
DirectorSach International (Pvt.) Limited
DGBoard Compensat
Committee
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HOLDING COMPANY
4.2 The board has two committees namely Board Compensation Committee and BoarAudit Committee.
4.2.1 Board Compensation Committee, comprising four members, is headed by MHussain Dawood. The committee is responsible for decisions relating to performanc
evaluation, development and succession of CEOs and top Executives. Also, the committeensures human resource policies are aligned to deliver robust talent management proces
across various Engro Companies while establishing group wide standards /policies.
4.2.2 Board Audit Committee, comprising four members, is headed by Mr ShabbHashmi. The committee assists the board in fulfilling its oversight responsibilitie
primarily in reviewing and reporting financial and non-financial information t
shareholders, systems of internal control and risk management and the audit process. I
has access to all information from management and can consult directly with the externa
auditors or their advisors as considered appropriate. The CEO and CFO attend th
meetings by invitation. The committee also privately meets with the external auditors a
least once a year. After each meeting, the chairman of the committee reports to the Board
4Mr. Isar Ahmed
[FCA & MA Economics]
Director Strategy and Business - Dawood Hercules
Chemicals Limited
Ex Head of Business UnitReckitt Benckiser
Ex MDHaleeb Foods Limited
DG Audit Committe
5Mr. Asad Umar
[MBAInstitute of BusinessAdministration]
CEOEngro Corporation Limited
CEOEngro Fertilizers Limited
Director State Bank of Pakistan
DirectorPakistan Institute of Corporate Governance
Employee -
6
Mr. Ruhail
Mohammad
[CFA & MBAInstitute ofBusiness Administration]
Group CFO
Ex CFOTrans Gulf Finance Corporation
Ex CEOSigma Leasing (Pvt.) Limited
Employee -
7Mr. Khalid Mansoor
[Chemical Engineer]
CEOEngro Energy Limited
CEOEngro Powergen LimitedEmployee -
8
Mr. Asif Qadir
[Chemical EngineerColumbia, USA]
CEOEngro Polymer & Chemicals Limited
DirectorEngro Powergen Limited
DirectorEngro Energy Limited
Employee -
9
Mr. Khalid Subhani
[Chemical Engineer & MBAUniversity of Berkley,
USA]
Designated CEOEngro Fertilizer Limited
DirectorEngro Polymer & Chemicals Limited
DirectorEngro Energy Limited
Employee -
10
Mr. Shabbir Hashmi
[MBAJF Kennedy
University, USA]
Private Equity ConsultantActis Assets Limited Independent
ChairmanAudCommittee
Board Compensat
Committee
11
Mr. Arshad Nasar
[MA Economics & PoliticalScience]
DirectorPakistan Industrial Development
Corporation
Ex CEO & chairmanOil & Gas DevelopmentCompany Limited
Ex MDCaltex Oil Pakistan
IndependentBoard Compensat
Committee
12
Mr. Ali Ansari
[BA EconomicsRichmondCollege, UK]
DirectorNational Clearing Company of PakistanCEODewan Drilling Limited
Ex CEOAKD Securities
Ex COOCredit Lyonnais Securities
Independent Audit Committe
13
Mr. Saad Raja
[MA ManagementLondonBusiness School, UK]
Asset ManagementIndustrial Bank of Japan Independent -
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HOLDING COMPANY
5.MANAGEMENT
Highly professionalmanagement
Principal operationcommittees
5.1 The management of ECL liesin the hands of five executives
namely Mr. Asad Umar (CEO), Mr.Ruhail Muhammad (Group CFO),
Mr. Tahir Jawaid (Human Resource
& Public Affairs), Mr. Naveed
Hashmi (Corporate Affairs) and Mr.
Andalib Alavi (General Manager
Legal).
5.2 Mr. Asad Umar, CEO, anMBA from the Institute of Business Administration, Karachi, has prior experience of ove
20 years with Engro Group. He has also previously served on the boards of the Oil an
Gas Development Company, Karachi Stock Exchange and Pakistan State Oil. Currently
he is the chairman of all Engro subsidiaries and joint ventures as well as the chairman othe Pakistan Chemical and Energy Sector Skill Development Company. In addition, M
Umar serves on the board of the State Bank of Pakistan as well as the Pakistan Busines
Council. He was awarded the Marketing Association of Pakistan Corporate Award o
Excellence in March 2010. Mr. Ruhail Muhammad, CFA and a MBA in Finance (gol
medalist) from the Institute of Business Administration, is currently the group CFO a
well as a member of the boards for all Engro subsidiaries. Ruhail joined Engro Polyme
and Chemicals Limited in 1998, before which he worked for Sigma Leasing Corporatio
Limited and TransGulf Finance Corporation. Mr. Tahir Jawaid is responsible fo
overseeing all human resource activities across ECL as well as its subsidiaries. He holds
Master of Science in Industrial Engineering from the University of Houston, USA and ha
previously worked in the US in various capacities for system and design engineerin
companies. Mr. Naveed A. Hashmi, GM Corporate Audit, joined Engro in 1985 aftehaving worked in the Pakistan Tobacco Company Limited. An MBA from the Institute o
Business Administration, Mr. Hashmi currently manages the internal audit function of th
company. Mr. Andalib Alavi is a Bar-at-Law from Lincolns Inn as well as an LLB from
the London School of Economics, UK. He is responsible for overseeing all legal affairs o
Engro group companies. Mr. Alavi has prior experience with Surridge & Beecheno an
Abraham & Sarwana before becoming a part of Engro as a legal advisor in 1992.
5.3 ECLs quality of management remains its core strength, and is duly recognized foits highly professional and long-term outlook. The top management is highly qualified an
well experienced in their respective fields. ECL has an annual appraisal process in place
which assesses employee performance against agreed criteria and identifies trainin
requirements, if any, to enhance overall standard of performance. At executive leveleadership qualities will be assessed through the Executive Committee (ExCom
evaluations. ECL maintains its compensation packages in line with the minimum 75
percentile in the corporate sector of Pakistan as ascertained by the annual Watson Wya
Compensation Survey.
5.4 The company has three principal operation committees, a) Executive Committe(ExCom), b) Corporate Health, Safety and Environment Committee and c) Compensation
Organization and Employee Development Committeeall headed by the Chief ExecutivOfficer. The following table gives an overview of the functions of these committees:
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HOLDING COMPANY
6.SYSTEMS &CONTROLS
Strong controlenvironment
SAP
6.1 ECL maintains an effective control environment with clear reporting lines anwell defined policies and procedures. The review and accountability function runs throug
the entire organizational structure. The role of the company, as a holding entity, is t
provide for and sustain the activities of its investments as a whole. Therefore, to maintai
proper monitoring and thorough oversight of its strategic investments, ECL generates
monthly MIS for its board members Dashboardthat provides a structured breakdow
of information on predetermined key indicators for each group entity. From a holdincompany perspective, this enables the management at ECL to review/ monitor th
performance of each individual subsidiary independently, in turn, facilitating decisio
making at business as well as corporate level. Further, the company is planning to launc
an Enterprise wide Risk Management (ERM) initiative following the completion of th
urea expansion project in order to assess crucial firm wide risks and their sources.
6.2 ECL has SAP ERP (Systems, Applications and Products) in place. Currently, thsystem covers financial, accounting and human resource applications of both ECL an
EFL. ECL is working towards enhancing the effectiveness of this system in order to full
realize the benefits emanating from complete implementation. The technical services fo
the implementation of the SAP ERP are provided by IBM Global Services whereas th
software itself has been developed by SAP AG (MalaysiaRegional Office). IBM GlobServices is responsible for ensuring the smooth transition from the existing system; th
full implementation of which is expected to be completed by the end of 2010. Goin
forward, ECL intends to enhance the scope of SAP capabilities across key subsidiaries.
6.3 ECLs in-house internal audit function is responsible for evaluating financial anoperational procedures to ensure adequacy of internal controls, reporting directly to th
audit committee for all critical issues.
7. PERFORMANCE
Significant holdingin robust fertilizer
sector
Continued focus onthree core sectors
7.1 As a holding company, the assets of ECL comprises equity stakes held at coprice in its subsidiaries/ associates with a total investment book of PKR 23,730mln o
which PKR 10,740mln
constitutes ECLs holding inEFL. The main income
component for ECL isdividends received from its
investments. A graph
illustrating historic dividend
patterns is given. The total
investment income reported
for 2009 amounted to PKR
1,885mln (2008: PKR
2,605mln) emanating from
Engro Eximp (Pvt.) Limited
(2009: PKR 1,435mln) and
Engro Vopak TerminalLimited (2009: PKR 450mln). Dividend for 1H10 is only from Engro Vopak with othe
investments yielding dividends towards the end of 2010. Meanwhile, a group-wide pictur
Committee Members Functions Frequen
Executive Committee
(ExCom)
Asad Umar CEO ECL
Ruhail Mohammad CFO ECL
Tahir Jawaid - VP HR
All designated CEO's of subsidiaries
Ali Akbar - Secretary
Responsible for addressing appropriate operational issues plus
managerial appointments at subsidiary/ associate level. The
committee operates as an advisory body for the Group CEO, and
helps in bringing synergy amongst the various businesses within
the Group, while augmenting decision making and consensus
building.
Quarterl
Corporate Health, Safety and Environment
(HSE) Committee
Asad Umar CEO ECL
All designated CEOs of subsidiaries
Responsible for providing leadership and strategic guidance on
Health, Safety and Environment improvement initiatives while
ensuring compliance with regulatory standards and international
benchmarks.
Quarterl
Compensation, Organization and Employee
Development (COED) committee
Asad Umar CEO ECL
All designated CEOs of subsidiaries
Responsible for the review of Compensation, Organization and
Employee Development matters of all people excluding employee
directors and senior executives.
Quarterl
0
500
1,000
1,500
2,000
2,500
3,000
FY07 FY08 FY09 1H10
PKRinmln
Dividend History
Engro Vopak Terminal Ltd. Engro Polymer & Chemicals Ltd.
Engro Eximp (Pvt.) Ltd.
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HOLDING COMPANY
of each entitys respective revenueand profitability for the six months
ending June10 is shown.
7.2 Going forward, thecompany envisages continued focuson three core sectors: 1) Fertilizer,
2) Food and 3) Energy, while
diversifying into other lucrative
business opportunities such as
chemicals, storage services,
business automations, import/
export of commodities. The role of
the holding company itself will be
limited in terms of operational
decision making but more on the
lines of oversight and strategic
direction. In terms of profitability,the companys income stream isexpected to be highly correlated to
the performance of group entities
and their ability to generate
positive cash flows. Although
some ventures of the company are
likely to remain non-earning in the
initial phase, they are expected to
develop a stable revenue stream
over the medium term; Engro
Energy is expected to contribute
towards ECLs dividend income, followed by Engro Fertilizer in 2011. Engro Polymewould follow suit once its VCM plant is completely functional.
SUBSIDIARY PERFORMANCE:
7.2.1 FERTILIZER: EFL, currently the second largest producer of urea in the country, in the business of manufacturing and marketing of fertilizers, registering a healthy bottom
line of PKR 2,012mln during 1H10. EFL markets urea under the brand name of Engr
Urea, MAP under the brand name ofZorawar, NPK under Zarkhez and DAP as Engr
DAP. EFLs urea plant, with a capacity of 975,000tons per annum, is located at Dharkwhereas NPK plant is situated at Port Qasim. EFLs urea expansion project (Enven 1.3originally expected to commence commercial production by July 2010, has bee
rescheduled to 4Q10. This is not expected to have a major impact on the budgeted projeccosts, which stand at an estimated USD 1,050mln including USD 30mln impact of rupe
devaluation. However, any delay beyond Sep10 would result in shortfall of projected cas
flows depending upon the related extent. The management expects that the project woul
enter commissioning phase by end-Sep10 and after satisfactory performance is achieved
COD would be announced. At Jun10, EFL is projected to incur PKR 4,000-6,000ml
more to complete Enven1.3. This will be met through a combination of equity (prof
retention) and debt. EFL has available unutilized line of PKR 1,725mln from syndicate
facility, and cash & cash equivalent of around PKR 2,092mln. In addition, EFL ha
financed its working capital at end-June10 through an amount which was taken out of loa
for the expansion project this may be freed by utilizing committed short term credfacility of approximately PKR 3,500mln. Meanwhile EFL, if need arises, may receive
fresh injection from ECL after the parent completes issuance of its first TFC (PKR4,000mln). The enhanced capacity (2,275,000 tons p.a.) is expected to increase EFLmarket share to ~35% (currently 23%). Meanwhile, EFL would continue compensatin
9,421
9,833
6,597
2,007
5,000
1,072 757
Revenues (PKR mln)
EFL
Engro Foods
EPCL
EPL/EEL
Engro Eximp
Engro Vopak
Avanceon
2,012
(179)
(449)
379
973
518
(94)
PAT (PKR mln)
EFL
Engro Foods
EPCL
EPL/EEL
Engro Eximp
Engro Vopak
Avanceon
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HOLDING COMPANY
fall in production due to gas curtailment (currently: 7%) through price hike inline wit
other industry players.
7.2.2 Engro Eximp (Pvt.) Limited (EEPL), a wholly owned subsidiary of ECestablished in 2002, is engaged in commodities export/import business. EEPL, fo
marketing imported phosphatic fertilizers, would be using Engro Fertilizer Limited. Thi
means that EEPL would be carrying all inventories on its own books. The compan
reported a profit of PKR 1,435mln in 2009 (1H2010: PKR 973mln).
7.2.3 FOODS: Engro Foods Limited, a wholly owned subsidiary established in 2005focuses on the dairy business. The company initially set up a processing plant in Sukku
with milk storage capacity of 300,000 liters/day and UHT (ultra heat treatment) mil
processing capacity of 200,000 liters/day. In 2007, another plant was installed in Sahiw
with a cost of PKR 3,000mln, having a processing capacity of 250,000 liters/day alon
with capability of producing tea whitener. With the added production from this new plan
the market share of the company in the UHT milk segment increased to 38%, makin
Engro Foods the market leader in this respect (Nestle: 37%). Engro Foods has als
installed an advanced ice cream plant in Sahiwal provided by Tetra Pak Hoyer with production capacity of 8mln liters/annum; marketing its products under the brand nam
Omore. The company is currently in the growth phase and reported a loss of PK434mln in 2009. Subsequently, the companys performance has improved with a total nloss of PKR 180mln as of end June10 with a profit of PKR 149mln posted by the dairsegment for the same period. Engro Foods entered the juice segment in May10 with th
brand name of Olfrute initially in four flavors. The company has also made inroads int
the rice export market exclusively focused upon basmati rice. The project, having capacity of 20,000mt per annum, is anticipated to commence commercial procuremen
and production by November 2010, under the purview of Engro Food Supply Chai
Management (Pvt.) Limited, formed specifically for the purpose.
7.2.4 POWER:Engro Powergen (Private) Limited (EPL), a wholly owned subsidiary oECL, has been set up with an aim to act as a negotiation window for all initiatives of th parent in the energy sector. The first outcome of ECLs effort is Engro Energy Limite(EEL), which was formed in 2006 to tap power generation opportunities. EEL has
combined cycle power project with net output of 217 MW, based on low BTU and hig
sulphur permeating gas from Qadipur gas field in Ghotki district. The project has a tota
cost of USD 205mln and became operational in March 2010 as per the revised schedule
EEL posted a profit of PKR 379mln for 1H10. Meanwhile, EPL has entered into a join
venture with the Sindh Government, forming the Sindh Engro Coal Mining Compan
(SECMC), for the mining, exploration and development of Thar Coal fields. The tota
project cost (including a power plant of 1200MW) will be ~USD 3,000mln, of whic
exploration cost is estimated to be around PKR 1,000mln. The exploration cost
expected to be shared 60% by ECL and 40% by the Sindh government. A pre-feasibilitand environment impact assessment is currently underway and is expected to b
completed during 2H2010 (cost: USD 3-5mln). During Mar10, SECMC signed two MoU
one with Sindh Coal Authority for obtaining an exploration license and another wit
PEPCO for supplying coal to PEPCOs 1,200MW thermal power plant, subject tavailability of excess coal supply.
7.2.5 ENGINEERING: Avanceon (formerly Engro Innovative Automation &Engineering (Pvt.) Limited) provides process control solutions to leading industrial uni
in the country. In early 2007, EIAL acquired a 70% stake in Advanced Automation L
(AALP), a company providing industrial solutions in automation controls and allie
services in the United States. To finance this transaction, ECL injected PKR 300mln. Th
company reported a profit of PKR 24mln in 2009. Avanceon posted a loss of PKR 94mlat end 1H10 though US operations were in profits (PKR 47mln).
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The Pakistan Credit Rating Agency Limited
HOLDING COMPANY
7.2.6 CHEMICALS:Engro Polymer and Chemicals Limited (EPCL) is mainly involvein manufacturing, marketing and selling of PVC. EPCL carried out a USD 240ml
expansion and back integration project which came online in late 2009. The projec
included setting up a new PVC plant, enhancing the manufacturing capacity to 150,00
tons per annum (current 100,000 tons per annum) and a backward integrated facilit
(VCM) with a capability to produce other intermediary products and caustic soda
Subsequent to commissioning of the project, a fire broke out in December 2009 in th
scrubber section of the companys VCM plant, due to which it was shut down to limit th
losses. The VCM plant is currently in the commissioning phase running at 70-80%capacity. After installation of scrubber expected to be done in Sep10the plant woulachieve full production capacity450tons/day (nameplate 600tons/day). EPCL, to financthe cost overrun of ~PKR 2,500mln, made a right issue during April10 amounting PK
1,430mln. The company reported a loss of 193mln in 2009 (1H10: loss of PKR 449mln).
7.2.7 STORAGE: Engro Vopak Terminal Limited (EVTL) is an equally owned joinventure with Royal Vopak of the Netherlands. The facility comprises an integrated liqui
chemical jetty cum storage. The company has also set up LPG storage facility and haexclusive rights to handle bulk liquid chemicals at Port Qasim. The company also adde
Ethylene storage capacity in 1Q2009. EVTL posted a profit of PKR 917mln in 200
(1H10: 518mln).
8. CAPITAL &
FUNDING
Assets/ liabilitiestransferred to EFL
Corporateguarantee to EFL
High quantum ofconsolidated debt
TFCs in the offing
8.1 Following the demerger ason January 01, 2010, all fertilizer
assets/ liabilities were transferred to
the balance sheet of EFL with ECL
carrying the equity investment in
subsidiaries at cost. Nevertheless,
following the demerger, un-
appropriated profits of ECPLamounting to PKR 9,250mln, as
well as a cash & bank balance of
PKR 3,501mln at end Dec09, have
been retained on the books of ECL.
The capital structure of the
company, pre and post demerger are
given in the chart.
8.2 With the issue of TFCs ofPKR 4,000mln, ECLs standalone capital structure would experience leveraging. Thgroup, with a consolidated debt (including short term borrowings) of ~PKR 103bln and
debt-to-equity ratio of 76:24 at Jun 10 excluding the comfort to be derived from thultimate parents (Dawood Hercules) low leveraged capital structure remains highlleveraged. Nevertheless, with the commissioning of Enven 1.3, the debt is expected t
gradually decrease over the medium term. In the meantime, the groups ability to raisrequisite funding through capital and/or debt markets largely mitigates the associate
risks.
8.3 Engro Corporation has irrevocably and unconditionally guaranteed to eacsecured party, as defined under the pertinent finance documents, punctual performance b
Engro Fertilizer of all its obligations and undertakes that whenever Engro Fertilizer doe
not pay any amount when due, it must immediately, on demand by the inter-creditor agen
(National Bank Pakistan), pay that amount as if it were the principal obligor in respect o
that amount.
8.4 TFCs Issue: ECL is in the process of issuing TFCs of PKR 4,000mln (includina green shoe option of PKR 2,000mln). TFCs would be primarily marketed among reta
-
25,000
50,000
75,000
100,000
125,000
150,000
Pre de-merger
(consolidated)
Dec 31,2009
Post de-merger
(consolidated)
June30, 2010
Post de-merger
(stand alone)
PK
R(mln)
Capital Structure
Equity Borrowings
Planned
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The Pakistan Credit Rating Agency Limited
HOLDING COMPANY
investors and thereafter listed on the stock exchange. The proceeds of the issue ar
expected to be utilized for ECLs own working capital requirement with a major portiobeing deployed in Engro Fertilizers. The salient features of the instruments are listed ithe following table.
Proposed TFCs
Issue size PKR 4,000mln (including green shoe option of PKR 2,000mln)
Tenor 3 years
Profit Rate 14.5% p.a.
Principal
Repayment
At the end of 3 years or early through Put Option. Incase the put option is exercised; the
investor has to pay service charges of 2% on the principal.
Security The TFC is secured by way of first ranking floating charge over over all the present and futuremovable properties (including investments) of Engro Corporation Limited but excluding
present and future trade marks and copyrights of ECL and excluding its shares in Engro
Energy Limited and Engro Polymer & Chemicals Limited.
Trustee IGI Investment Bank Limited
AnalystsArsalan Ahmed
+92 42 3586 9504
Jhangeer Hanif+92 42 3586 9504
Disclaimer:
PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its
accuracy or completeness is not guaranteed. PACRA shall owe no liability whatsoever to any loss or damage caused by or resulting from anyerror in such information. None of the information in this document may be copied or otherwise reproduced, stored or disseminated in whole
or in part in any form or by any means whatsoever by any person without PACRAs written consent . Our reports and ratings constitute
opinions not recommendations to b or to sell
8/3/2019 PACRA Rating Report Engro Corp August 2010
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The Pakistan Credit Rating Agency L imi ted
Engro Corporation Limited (formerly Engro Chemical Pakistan Limited)
BALANCE SHEET (PKR in million)
For the year ending 30-Jun-10 1-Jan-10 31-Dec-09 31-Dec-08
Unaudited Split
A NON-CURRENT ASSETS
1 Operating Fixed Assets - Owned and Leasehold 86.03 54.64 69,517.51 33,395.76
2 Intangible Assets - - 122.70 122.86
3 Other Non-Current Assets - 2.79 331.69 354.89
Non-Current Assets 86.03 57.43 69,971.91 33,873.51
B INVESTMENTS
1 Associates / Subsidiaries
a. Equity 25,352.90 23,727.80 12,988.66 11,091.86
b. Debt Securities / Loans 241.86 - - -
25,594.77 23,727.80 12,988.66 11,091.86
1 Investment Property - - - -
2 Other Investments
a. Fixed Income/Money Market Funds 851.86 241.91 450.86 67.81
b. Term Deposit - - - -
851.86 241.91 450.86 67.81Investments 26,446.63 23,969.71 13,439.51 11,159.67
C CURRENT ASSETS
1 Inventories
a. Stores and Spares - - 961.12 957.24
b. Stock-in-trade- raw material - - 303.99 1,142.83
finished goods - - 118.62 3,529.04
- - 1,383.72 5,629.11
2 Trade Receivables - - 2,514.43 261.51
3 Other Current Assets 65.67 225.08 1 2,444.52 1 7,668.66
4 Cash and Bank Balances 754.14 3,501.22 3,955.34 1,687.04
Current Assets 819.81 3,726.29 10,298.01 15,246.32
D TOTAL ASSETS (A+B+C) 27,352.47 27,753.43 93,709.44 60,279.50
E CURRENT LIABILITIES
1 Borrowings
a. Current portion of long term debt - - 830.70 94.93
b. Short term debt - 0.94 195.75 1,711.28- 0.94 1,026.45 1,806.21
2 Trade Payables 161.44 151.53 593.37 840.72
3 Other Current Liabilities 113.82 - 4,673.55 3,034.11
5 Dividend Payable - 102.10 102.10 309.29
Current Liabilities 275.26 254.56 6,395.47 5,990.32
F NON-CURRENT LIABILITIES
1 Borrowings - - 58,565.35 27,756.71
2 Due to Associates - - - -
3 Other Non-Current Liabilities 0.66 0.90 1,860.38 3,448.39
Non-Current Liabilities 0.66 0.90 60,425.73 31,205.11
G NET ASSETS (D-E-F) 27,076.55 27,497.97 26,888.24 23,084.07
H SHAREHOLDERS' EQUITY
1 Ordinary Share Capital 3,277.37 2,979.43 2,979.43 2,128.16
2 Preference Share Capital - - - -
3 Share Premium Account 10,550.06 10,550.06 10,550.06 7,152.724 Revaluation Reserve
a. Fixed Assets - - - -
b. Investments - - - -
- - - -
5 Revenue Reserves 4,506.36 4,717.50 4,107.78 6,892.06
6 Unappropriated Profit 8,742.76 9,250.98 9,250.97 6,911.12
Shareholders' Equity 27,076.55 27,497.97 26,888.24 23,084.07
0.00
1 Foreign exchange forward contract
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Engro Corporation Limited (formerly Engro Chemical Pakistan Limited)PROFIT & LOSS ACCOUNT (PKR in million)
For the year ending 30-Jun-10 31-Dec-09 31-Dec-08Unaudited
A Turnover
1. Own Manufactured 16,136.46 15,508.82
2. Purchased Product 14,035.06 7,808.38
- 30,171.52 23,317.20
B Operating Costs - (23,240.18) (17,120.64)
C Gross Profit - 6,931.34 6,196.56
D Operating Expenses
1 Administrative and General Expenses (80.39) - -
2 Selling and Marketing Expenses - (1,945.18) (1,657.82)
(80.39) (1,945.18) (1,657.82)
E Operating Profit / (Loss) (80.39) 4,986.17 4,538.75
F Income From Associates
1 Dividend 180.00 1,885.00 2,605.40
2 Share of Profit/(Loss) - - -
180.00 1,885.00 2,605.40
G Others
1 Profit/(Loss) on Sale of Assets - 23.60 69.30
2 Income from Investments - - -
3 Surplus / (Deficit) on revaluation - - -
4 Royalty Income * 127.74 - -
5 Other Income/ Expenses 93.32 (378.92) (520.56)
6 Exchange Gain/(Loss) - - 18.04
221.06 (355.32) (433.21)
H Profit / (Loss) before Financial Charges 320.67 6,515.85 6,710.93
I Financial Charges
1 Interest Income 147.64 19.67 2.592 Interest Expense (1.60) (1,320.58) (1,508.95)
146.04 (1,300.91) (1,506.35)
J Profit / (Loss) before Taxation 466.71 5,214.94 5,204.58
K Taxation (81.09) (1,257.70) (964.14)
L Net Income / (Loss) 385.62 3,957.25 4,240.43
M Unappropriated Profit/(Loss) Brought Forward 9,250.97 6,911.13 4,116.63
N Available for Appropriation 9,636.59 10,868.38 8,357.06
O Appropriations
1 Reserves - - (14.26)
2 Dividends
a. Stock (297.94) - -
b. Cash (595.89) (1,617.40) (1,431.67)
(893.83) (1,617.40) (1,431.67)
P Effect of change in Accounting Policy (+/-)
Q Unappropriated Profit Carried Forward 8,742.76 9,250.98 6,911.13
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The Pakistan Credit Rating Agency L imited
Engro Corporation Limited (formerly Engro Chemical Pakistan Limited)
CASH FLOW STATEMENT (PKR in million)
For the year ending 30-Jun-10 31-Dec-09 31-Dec-08
Unaudited
A CASH FLOWS FROM OPERATING ACTIVITIES
1 Profit Before Tax 466.71 5,214.94 5,204.58
2 Adjustments for:
a. Depreciation/Amortization 7.93 672.43 653.73
b. Interest Expense/(Income) (146.04) 1,320.58 1,508.95
c. Others (+/-) - - -
(138.11) 1,993.01 2,162.68
EBITDA 328.60 7,207.95 7,367.26
3 Adjustments for other Non-Cash Charges/Items (256.52) (1,594.30) (2,474.80)
72.08 5,613.65 4,892.46
4 Changes in Working Capital
a. (Increase)/Decrease in Curent Assets (7.08) 2,466.18 (1,290.40)
b . Increase/(Decrease) in Curent Liabilities (Excl. Debt) (34.50) 695.58 (279.61)
(41.58) 3,161.76 (1,570.00)
Cash Generated from Operations 30.50 8,775.42 3,322.46
5 Financial Charges Paid (1.60) (758.95) (1,090.52)
6 Taxation Paid (41.56) (1,226.86) (574.98)
7 Others (+/-) (10.62) (250.72) (242.34)
(53.78) (2,236.53) (1,907.83)
Net Cash provided by Operating Activities (23.28) 6,538.89 1,414.62
B CASH FLOWS FROM INVESTING ACTIVITIES
1 Capital Expenditure (42.01) (36,352.36) (20,214.34)2 Proceeds from sale of Fixed Assets 3.10 58.45 87.73
4 (Purchase)/Sale of Investments - (1,896.80) (3,327.38)
5 Income from Investments 416.51 1,973.18 2,656.88
6 Investment in Subsidiary/Associated Companies (1,625.10) - (910.00)*
7 Others - (450.00) (622.00)**
Net Cash (Used in)/Available From Investing Activities (1,247.50) (36,667.53) (22,329.11)
C Cash In/(Out) Flow Pre-Financing (1,270.78) (30,128.64) (20,914.48)
D CASH FLOWS FROM FINANCING ACTIVITIES
1 Proceeds from Issue of Ordinary Shares - 4,248.60 3,382.21
2 Dividends Paid (624.43) (1,833.62) (1,306.10)
3 Others (+/-) - 335.27 -
(624.43) 2,750.25 2,076.12
E NET DEBT (INCREASE)/DECREASE (1,895.21) (27,378.39) (18,838.37)
F OPENING NET (DEBT)/CASH 3,501.22 (27,808.08) (8,969.71)
G CLOSING NET (DEBT)/CASH 1,606.00 (55,186.47) (27,808.08)
H NET (DEBT)/CASH
1 Long-Term Loans/Finances - (58,565.35) (27,756.71)
2 Short-term Loans/Finances - (1,026.45) (1,806.21)
- (59,591.81) (29,562.92)
3 Cash & Cash Equivalents 1,606.00 4,405.34 1,754.85
1,606.00 (55,186.47) (27,808.07)*
Advance to Engro Eximp Private Limited**
Payment to Engro Foods Limited for acquisition of tax losse s
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The Pakistan Credit Rating Agency Limited
Engro Corporation Limited (formerly Engro Chemical Pakistan Limited)
RATIO ANALYSIS
30-Jun-10 31-Dec-09 31-Dec-08
Unaudited
A EARNINGS/PROFITABILITY
1a Own Manufactured Products Growth n.a. 4.05% 44.29%
1b Purchased Products Growth n.a. 79.74% -37.20%
2a Gross Margin- Own Manufactured n.a. 38.87% 37.63%
2b Gross Margin- Purchased Products n.a. 4.69% 4.62%
3 Operating Margin n.a. 21.60% 28.78%
4 Pre-Tax Profit Margin n.a. 17.28% 22.32%
5 Net Profit Margin n.a. 13.12% 18.19%
6 Effective Tax Rate 17.38% 24.12% 18.52%
7 Average Interest Rate n.a. 2.22% 5.10%
8 Pre-Tax Return on Equity 1.72% 19.39% 22.55%
9 Return on Equity (ROE) 1.43% 15.84% 21.84%- Asset Turnover (Times) n.a. 7.63 0.39
- Net Profit Margin n.a. 13.12% 18.19%
- Financial Leverage (Times) 1.01 3.49 2.61
10 Return on Assets (ROA) 0.39% 5.36% 8.59%
B COVERAGE
1 Short-term Debt Payback (Years) n.a. 0.12 0.54
2 Total Debt Payback (Years) n.a. 6.79 8.90
3 Net Debt Payback (Years) (52.66) 6.29 8.37
4 Net Debt / EBITDA (4.89) 7.66 3.77
5 EBITDA Net Interest Cover (X) (2.25) 5.54 4.89
6 Net Interest Cover (X) (2.20) 5.01 4.46
C LIQUIDITY
1 Current Ratio (X) 6.07 1.68 2.55
2 Quick Ratio (X) 6.07 1.46 1.61
3 Average Inventory Held (Days) n.a. 4.77 40.86
4 Average Trade Debtors (Days) n.a. 30.42 13.07
5 Gross Cash Cycle (Days) n.a. 35.19 53.93
6 Average Trade Creditors (Days) n.a. 9.32 33.19
7 Net Cash Cycle (Days) n.a. 25.87 20.74
D FINANCIAL STRUCTURE
1 Current Debt/Total Debt n.a. 1.72% 6.11%
2 Total Debt/Equity n.a. 221.63% 128.07%
3 Net Debt/Equity -5.93% 205.24% 120.46%
4 Equity/Total Assets 98.99% 28.69% 38.30%
5 Total Debt/Adjusted Equity (Net of Rev. Surplus) -0.92% 220.70% 126.98%
6 Total Liabilities/Equity 1.02% 248.51% 161.17%
7 Total Debt/(Total Debt+Equity) n.a. 68.91% 56.15%
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The Pakistan Credit Rating Agency Limited
GLOSSARY OF TERMS USED BYPACRA(INDUSTRIAL CORPORATES)
DESCRIPTION METHODOLOGY
PROFITABILITY
1. Gross Profit Margin (%) (Sales less COGS) / Sales
2. Net Profit Margin (%) Profit After Tax / Sales
3. Return on equity (ROE) (%) Profit After Tax / Average Equity.
4. Return on assets (ROA) (%) Profit After Tax / Average Assets
COVERAGE
1. EBITDA PKR mln Earnings before interest, tax, depreciation and amortization.
2. Total Debt Pay-Back Period Years Total debt / Cash generated from operations
3. Net Debt Pay-Back Period Years Total debt less cash / Cash generated from operations
4. Net Interest Cover (x) Net profit before interest and taxes / Net Interest Expense +
Interest Capitalized
5. Ordinary Dividend Cover (x) Net income after tax but before extraordinary items /
Dividends paid and proposed
LIQUIDITY
1. Current Ratio (x) Current assets / current liabilities
2. Quick Ratio (x) Trade debtors, other debtors, liquid investments, cash and
deposits / current liabilities
3. Average Inventory Held Days Average Inventory for the year (excl. stores and spares) /
cost of goods sold
4. Average Trade Debtors Held Days Average trade debtors for the year / Sales
5. Average Trade Creditors Days Average trade creditors for the year / Cost of goods sold
6. Gross Cash Cycle Days Average inventory held plus average trade debtors held
7. Net Cash Cycle Days Gross cash cycle less average trade creditors held
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The Pakistan Credit Rating Agency Limited
STANDARD RATING SCALE & DEFINITIONS
LONG TERM RATINGS SHORT TERM RATINGS
AAA: Highest credit quality. AAA ratings denote the lowest
expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA: Very high credit quality. AA ratings denote a very low
expectation of credit risk. They indicate very strong capacity for
timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.
A: High credit quality. A ratings denote a low expectation ofcredit risk. The capacity for timely payment of financial
commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or
in economic conditions than is the case for higher ratings.
BBB: Good credit quality. BBB ratings indicate that there is
currently a low expectation of credit risk. The capacity for timely
payment of financial commitments is considered adequate, but
adverse changes in circumstances and in economic conditions are
more likely to impair this capacity. This is the lowest investment-
grade category.
BB: Speculative. BB ratings indicate that there is a possibilityof credit risk developing, particularly as a result of adverse
economic change over time; however, business or financial
alternatives may be available to allow financial commitments to
be met. Securities rated in this category are not investment grade.
B: Highly speculative. B ratings indicate that significant
credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met; however,
capacity for continued payment is contingent upon a sustained,
favourable business and economic environment.
CCC, CC, C: High default risk. Default is a real possibility.
Capacity for meeting financial commitments is solely reliant uponsustained, favourable business or economic developments. A
CC rating indicates that default of some kind appears probable.
C ratings signal imminent default.
A1+: Obligations supported by the
highest capacity for timely repayment.
A1:. Obligations supported by a strong
capacity for timely repayment.
A2: Obligations supported by a
satisfactory capacity for timely
repayment, although such capacity may
be susceptible to adverse changes inbusiness, economic, or financial
conditions.
A3: Obligations supported by an
adequate capacity for timely repayment.
Such capacity is more susceptible to
adverse changes in business, economic,
or financial conditions than for
obligations in higher categories.
B: Obligations for which the capacityfor timely repayment is susceptible to
adverse changes in business, economic,
or financial conditions.
C: Obligations for which there is an
inadequate capacity to ensure timely
repayment.
D: Obligations which have a high risk
of default or which are currently in
default.
Notes: 1. PACRA's ratings are an assessment of the credit standing of entities in Pakistan. They do not take into account the potentialtransfer / convertibility risk that may exist for foreign currency creditors.
2. A plus (+) or minus (-) may be appended to a rating to denote relative status within major rating categories. Such suffixes arenot added to the AAA long-term rating category, to categories CCC and below, or to short-term ratings.
3. PACRA's rating is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on thesecuritys market price or suitability for a particular investor.