April 5, 2019 (MLN): VIS Credit Rating Company Limited (VIS) has finalized and reaffirmed the AA (Double A) rating assigned to the outstanding Sukuk issue of International Brands (Private) Limited (IBL).
Entity ratings of IBL have also been reaffirmed at A/A-2 (Single A/ A-Two). The outlook on the assigned ratings is ‘Stable’.
IBL operates under a holding company structure. The Company has a diversified investment portfolio in various sectors including pharmaceuticals, foods, distribution, technology and retail. Pharmaceutical segment remains the key focus area of the group.
The principal activity of the company is to hold and manage investments.
The assigned entity ratings incorporate strength of the Company’s investment portfolio with major investment in The Searle Company Limited (Searle).
Searle is a prominent player in the pharmaceutical sector and has strong financial & business risk profile which is a key rating driver.
The Company has a diverse therapeutic area coverage and enhancing share of specialty branded portfolio remains a key focus area.
Dividend payout ratio of Searle has declined on a timeline basis in FY18 but overall dividend income remains sufficient for meeting operating expenses and debt obligations.
Entity ratings assigned reflect current and projected capital structure along with support to cash flows from the fall back convertibility feature in the Sukuk.
Ratings remain dependent on maintaining healthy cushion in debt servicing over the rating horizon.
IBL raised Rs. 2.83billion through a Sukuk issue in FY18. The Sukuk had a tenor of 4 years.
Principal repayment of the Sukuk is at maturity with annual profit payment frequency. The Sukuk issue will be repaid through a planned Initial Public Offering (IPO) to be completed prior to the expiry of the Sukuk.
Security structure of the Sukuk entails pledge of shares of Searle. Given the decline in share price of Searle, cushion offered by shares pledged over the outstanding Sukuk amount has witnessed notable decline.
Ratings assigned to the Sukuk draw comfort from fall back debt servicing mechanism of the Sukuk issue that carries the feature of timely convertibility into shares of Searle, to the extent of any shortfall.
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