The Pakistan Credit Rating Agency (Pacra) has upgraded the long-term and short-term entity ratings of Al-Abbas Sugar Mills Limited (AASML) to "A" (Single A) and "A1" (A One) respectively. These ratings are applicable to the senior unsecured creditors of the bank.
The rating of the AASML's secured TFC issue of Rs 350 million has been upgraded to "A+" (Single A plus), which denote a low expectation of credit risk and a strong capacity for timely payment of financial commitments.
The AASML's ratings reflect sustained positive performance trends despite the volatile nature of the sugar industry. The company's financial performance continues to benefit from the increasing proportion of high-margin, lower-risk distillery revenues.
The ratings also factor in the company's enhanced propensity to absorb risk on the back of a further strengthening of its capital structure.
The company issued a secured TFC of Rs 350 million in 4QFY03 to facilitate expansion in its distillery unit and for debt substitution. The instrument is privately placed with a tenor of five years at a rate of the three-month T-Bill rate plus 3.25 percent per annum with a floor of six percent and a ceiling of 13 percent.
Principal redemption will be in 18 equal quarterly instalments after an initial grace period of six months. The issue is secured by first pari passu charge on the fixed assets, including plant and machinery with 25 percent margin, in addition to personal guarantees of sponsor directors. Considering the secured nature of the instrument, it has been assigned a one-notch higher rating than the entity rating.
The AASML, listed on the Karachi Stock Exchange, was incorporated in May 1991. The company operates a sugar plant and Industrial Alcohol Distillery (IAD) located in Mirpurkhas. Recognising the risk inherent in sugar operations, the company expanded its distillery operations in FY 03-04.
Distillery revenues, therefore, form an increasing proportion of the company's turnover. The company's sponsors have more than 50 percent shareholding. The management, with a good blend of youth and experience, has a track record of efficient operations and a strategic vision.
The Al-Abbas Group, which includes four manufacturing concerns, benefits from its close association with the Jahangir Siddiqui (JS) Group. The JS Group has a 22 percent shareholding in the AASML and is fast emerging as a major conglomerate with an increasingly diverse asset base.