Karachi: VIS Credit Rating Company Limited (VIS) has assigned a preliminary short-term rating of A-1 (plim) to RYK Mills Limited’s proposed short-term sukuk, indicating a strong likelihood of timely repayment with excellent liquidity factors.

According to VIS Credit Rating Company Limited, RYK Mills, a public limited company founded in 2007, is headquartered in Lahore Cantt with manufacturing operations in Rahim Yar Khan, Punjab. The company’s business spans the production and sale of sugar, ethanol, and related by-products, as well as power generation. It fully owns Alliance Sugar Mills Limited.

RYK Mills plans to raise up to PKR 4 billion through an unsecured, privately placed short-term Sukuk, including a PKR 1 billion green shoe option, to support its working capital. The sukuk, featuring a Musharakah structure and a tenor of six months, offers a profit rate of 100 basis points per annum with an early redemption option. It mandates maintaining a Debt Payment Account under lien with scheduled pre-funding ahead of maturity and requires a quarterly sales throughput of Rs. 6 billion.

The rating reflects the sugar sector’s business risk profile, marked by low economic cyclicality yet high sensitivity to sugarcane production levels and quality. Despite current challenges from surplus sugar stocks pressing on prices, the sector eyes potential relief from additional export allocations with the upcoming crushing season. The assigned rating benefits from expected profitability growth driven by increased ethanol exports and tariff revisions in the power segment by NEPRA. Future profitability is also likely to be bolstered by anticipated interest rate cuts. Improved liquidity metrics and adequate coverage metrics, alongside high but improving gearing and leverage ratios, support the rating. Key factors for future rating assessments include timely reduction of sugar inventories, margin maintenance and improvement, and realization of arrears in the power segment.