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The Pakistan Credit Rating Agency Limited

Date
04-Aug-2017
Analysts
Jhangeer Hanif
jhangeer@pacra.com

Sanna Khan
sanna.khan@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Corporate Rating Methodology (Jul 17) [View]
  • Correlation between long-term and short-term rating scale (Jun 17) [View]

Related Research

  • Sector Study | Fertilizer (Oct 16) [View]
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PACRA Maintains Entity Ratings of Fauji Fertilizer Company Limited
 Rating Type Entity
Current
(04-Aug-2017-)
Previous
(04-Aug-2016)
 Action Maintain Initial
 Long Term AA AA
 Short Term A1+ A1+
 Outlook Stable Stable
 Rating Watch - -

The ratings reflect FFC's dynamic business profile and strong financial position while incorporating the sound financial strength of Fauji Group. FFC is one of the largest players in the fertilizers market in terms of its production. The strong business footprint of FFC has enabled the company to build an impeccable brand in Pakistan with "Sona" being a household name in the farming community. The production facilities are secured by uninterrupted supply of gas from Mari field, representing inherent commercial strengths of the company in terms of sustainable business volumes. The industry currently faces price competition due to surplus urea inventory in the country, mainly due to higher production on the back of improved gas situation and lower international prices. Inventory risk is being mitigated through prospective urea exports under the Government' urea export quota (0.6mln tonnes).
FFC carries a sizable book of diversified investments – both long term and short term- which has been developed to offer sustainable returns to its stakeholders. Dividend stream from the investment portfolio supplements FFC’s profitability. FFC is eyeing expansion in fertilizer (outside Pakistan) and energy; leveraging associated with new projects will require oversight and close attention.
About the Entity
Fauji Fertilizer Company Ltd (FFC), incorporated in 1978, operates with three Urea and Ammonia manufacturing plants; total name plate capacity of 2,048mln tonnes, ensures sustained supply of urea to the farmers. The company is quoted on the Pakistan Stock Exchange and has been ranked amongst the KSE's top 25 companies for over 20 years besides securing first position for 6 consecutive years since 2010. Currently with a combined market share of 45%, FFC has diversified its risk portfolio by investing in various sectors amounting to PKR 22bln. Fauji Foundation (FF) - a charitable trust - is the majority shareholder (44.35%) of the Company. Fauji Group is amongst the largest business conglomerates in Pakistan, with investments in various sectors including energy, gas supply, fertilizer, cement and food, which "Earns to Serve" for the welfare of ex-servicemen and their families.
The thirteen member Board of FFC, including the CEO, comprises of seven representatives of FF, four independent directors including one each from NIT and SLIC. The CEO, Lt Gen Shafqaat Ahmed, HI-(M) Retired, joined the Board in March '15, and is also the CEO of the two subsidiaries of FFC; Fauji Fresh N Freeze Ltd and FFC Energy Ltd. He is supported by strong professional and experienced management team having long association with the Company.

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.
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