Karachi: VIS Credit Rating Company Limited has reaffirmed the 'A+' rating for the Sukuk-1 issuance of Mughal Iron and Steel Industries Limited (MISIL), maintaining a stable outlook. This rating reflects good credit quality with adequate protection factors, although it is susceptible to economic fluctuations.

According to VIS Credit Rating Company Limited, the Sukuk, which aligns with the entity’s overall 'A+/A-1' rating, was previously evaluated on March 31, 2023. Mughal Iron and Steel, founded on February 16, 2010, and publicly traded on the Pakistan Stock Exchange, operates primarily in the production and sale of mild steel products, with facilities located in Lahore.

MISIL issued PKR 5.0 billion in listed, secured, and privately placed long-term Islamic Certificates (Sukuk) with a potential increase (Green Shoe option) of PKR 2 billion. The Sukuk features a five-year term with a profit rate of 3MK+1.3% per annum, payable quarterly. To enhance security, the arrangement includes a Debt Service Reserve Account (DSRA) and a Debt Payment Account (DPA), with strict provisions for maintaining cash reserves and asset charges.

The ratings take into account the volatile nature of the long steel industry in Pakistan, marked by its sensitivity to economic cycles, foreign exchange rates, and global steel price fluctuations. The challenging year of FY23 saw economic constraints from floods, inflation, and currency issues impacting the sector's overall market size and leading to reduced profitability for MISIL.

Additionally, MISIL's profitability metrics declined in FY23, with noticeable drops in top-line revenue, gross margins, and overall profitability. Despite these challenges, the company's capitalization and liquidity profiles are considered adequate for the current rating level. However, the coverage ratios have deteriorated due to significant increases in policy rates over the review period.

Future ratings will depend on MISIL’s ability to enhance its profitability and coverage metrics. The ongoing performance of the non-ferrous segment and the maintenance of adequate capitalization and liquidity will also be critical factors in sustaining the current ratings.

For more details on this ratings update, stakeholders are encouraged to contact Mr. Saeb Muhammad Jafri or the undersigned at VIS Credit Rating Company Limited.