JCR-VIS reaffirms Entity and Bank Loan Ratings of Power Cement Limited

October 3, 2018 (MLN): The Credit Rating Company, JCR-VIS has reaffirmed the Entity ratings of Power Cement Limited (PCL) at ‘A-/A-2’ (Single A Minus/A-Two). Outlook on the assigned rating is ‘Stable’.

According to an official statement from the credit rating agency, bank loan rating (blr) of PCL’s secured bank loan facility, obtained to fund Line 3 expansion of 7,700 Tonnes per day has been finalized and reaffirmed at ‘A (blr)’ (Single A (blr)).

The previous rating action was announced on July 10, 2017.

The agency divulged that the assigned rating to PCL is underpinned by financial profile and demonstrated track record of support from parent entity and sponsor family. “This is also reflected in the form of significant project cost overrun and debt payment shortfall support provided for line III expansion,” added JCR-VIS.

Demand outlook for the sector is expected to post a stable growth on the back of ongoing and planned infrastructure projects (including dams) and demand for housing and commercial space. However, slow-down in economic growth, increase in interest rates and delay in infrastructure projects may impact projected demand growth, believes the agency,

“After witnessing significant decline during FY18, JCR-VIS expects industry margins to remain under pressure in FY19. Expansion projects of three players (Lucky Cement in Dec’2017, ACPL in Jan’2018 and DGKC in May’2018) representing around two-third of existing capacity have come online over the last 6-8 months in the South Zone,” informed the agency.

While the marketing arrangement has largely operated smoothly post expansion, JCR-VIS expects prices to become more competitive given the supply side surpluses in the mid-term.

The agency further added that, “Progress has been noted with regards to PCL’s line 3 expansion which is expected to go live in the last quarter of fiscal year FY19. Around 70% of the equipment has arrived at project site with a significant portion of the civil wok having achieved completion. However, given the decline in margins primarily due to higher coal prices, profitability and funds generated from operations has depicted weakening during 9MFY18.”

“Going forward, a mix of cash generated from operations and borrowings will be used for funding current maturity of long-term debt and capex on existing lines. Interest during construction for expansion is already a part of the project cost while repayment of principal of debt acquired for expansion will be paid from cash flows of the new plant, starting in January 2021,” apprised the agency.

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