GIDC settlement, improvement in DAP business dynamics to boost FFBL’s financial profile

September 2, 2019: VIS Credit Rating Company Limited has assigned initial long term entity rating of ‘A+’ and short term rating of ‘A-1’ to Fauji Fertilizer Bin Qasim Limited (FFBL). Outlook on the assigned ratings is ‘Stable’.

Long term rating of ‘A+’ denotes good credit quality and adequate protection factors; risk factors may vary with possible changes in the economy. The short term rating of ‘A-1’ signifies high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors.

FFBL is the sole domestic producer of Di-Ammonium Phosphate (DAP) fertilizer. It is also the only producer and marketer of granular form UREA (in contrast to widely marketed ‘prilled’ variant). FFBL enjoys leadership in DAP fertilizers with market share of 30.7% and is Pakistan’s 4th largest producer of UREA.

The assigned ratings incorporate strong financial profile and business acumen of FFBL’s major sponsors -FFC and FF. Rating also reflect FFBL’s leading market position in DAP business, diversified business risk profile and strong corporate governance infrastructure. Ratings also take into account existing financial profile where elevated leverage indicators (to fund long-term investments on balance sheet) and modest coverages are a rating constraint.

Gradual improvement in DAP business dynamics, Gas Infrastructure Development Cess (GIDC) settlement and improvement in financial performance of subsidiaries is expected to improve financial profile over the rating horizon. Ratings remain dependent on timely GIDC settlement and materialization of projected dividend income from investments while reprofiling of long-term debt in line with projected cash flows would be an important rating consideration.

As part of company’s strategic vision to offer sustainable returns to shareholders, FFBL carries a sizeable book of diversified investments. Investment portfolio (including TDRs) represented 38.6% of total asset base at end-1Q19. The portfolio features a mix of investment in defensive and growth industries. Dividends from power sector investments are expected to constitute the bulk of the dividend income over the rating horizon.