VIS reaffirms entity ratings of Fatima Fertilizer

July 21, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Fatima Fertilizer Company Limited (PSX: FATIMA) at ‘AA+’ for long-term and ‘A-1+’ for the short term with a stable future outlook, a latest press release issued by VIS showed.

The medium to long-term rating of ‘AA+’ denotes high credit quality coupled with strong protection factors.

The short-term rating of ‘A-1+’ denotes the highest certainty of timely payment, short-term liquidity including internal operating factors and/or access to alternative sources of funds is outstanding and safety is just below risk-free GoP short-term obligations.

The previous rating action was announced on May 31, 2022.

The ratings assigned to FATIMA take into account the low business risk profile of the fertilizer sector owing to the non-cyclical nature of the industry, increasing significance of food security and consequent enhancement in the strategic importance of the fertilizer sector for the country.

On the other hand, business risk incorporates the sensitivity of margins to gas & phosphate pricing and the devaluation of local currency.

In addition, ratings also factor in the company’s strategic positioning as the leading player of the fertilizer sector in the domestic market.

The ratings reflect the sound financial risk profile of the company marked by positive momentum in revenues, sizable margins and profitability indicators, sound liquidity profile and substantial debt-service coverages.

Further, the ratings are underpinned by a conservative capital structure with limited reliance on long-term borrowings.

Despite procurement of incremental long-term to fund capex, gearing remained on the lower side and well aligned with the assigned ratings.

Moreover, given there are no expansion plans in perspective with only normal BMR to be carried out, the leverage indicators are projected to improve during the rating horizon.

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