Press Release

VIS Maintains Sukuk Ratings of Crescent Steel and Allied Products Limited

Karachi, December 13, 2023: VIS Credit Rating Company Limited maintains sukuk ratings of Crescent Steel & Allied Products Limited ('CSAP' or 'the Company') to 'A-' (Single A minus) with a 'Stable' outlook. Medium to long term rating of 'A-' indicates good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. Sukuk ratings are in line with entity rating of ‘A-/A-2’ (Single A Minus/A-Two). Previous rating action was announced on March 31, 2023.
CSAP, incorporated in 1983, is a steel pipes manufacturing entity publicly listed on the Pakistan Stock Exchange (PSX). Headquartered in Karachi, Pakistan, and has a large-diameter spiral welded steel pipes and coating facility. The Company's operations also include cotton spinning, billet manufacturing and energy generation. Its Energy Segment mainly supplies power to its Hadeed (billet) Division while any surplus energy is supplied to the national grid.
The Company has issued a privately placed sukuk of Rs. 800m to meet its working capital needs. The sukuk has a tenor of three years with six equal installments of principal redemption starting from the 6th month of drawdown. The pricing of the issue is 6M-KIBOR plus 2% spread. Security structure of the sukuk entails ranking charge on Fixed Assets/constructive mortgage charge. Moreover, a collection account will be maintained with the collection bank, which will be funded for the entire installment amount 20 days prior to the payment date.
Ratings incorporate the high business risk profile of CSAP within the steel pipes & tubes industry. This sector is highly sensitive to economic cyclicality and exposed to fluctuations in exchange rates and international commodity prices. The industry faces challenges such as low-capacity utilization, revenue and profitability issues, taxation challenges, higher financing costs, rupee depreciation, and increases in gas and electricity prices.
Assigned ratings also consider its diversified revenue stream with segments like steel, cotton, investment, and energy. However, challenges in certain segments are also incorporated, such as continued losses and halt in production of the billet and energy segment in FY23, affecting the overall business risk profile. Despite diversification, the Company has faced difficulties in benefiting from its various segments, resulting in historically volatile profitability. CSAP's ratings derive support from its conservative debt profile, adequate liquidity and coverage profile.
The outlook has been revised from ‘Rating Watch – Negative’ to ‘Stable’ given the gradual realization of orders in hand into revenue. Going forward, translation of order in hand into sales up to the extent as planned by year-end FY24 will be an important consideration. In addition, materialization of the remaining tonnage of expected tenders and sufficient fresh orders to sustain CSAP’s operations will be key sensitivity for future ratings.
For further information on this ratings announcement, please contact Mr. Saeb Muhammad Jafri (Ext: 202) or the undersigned (Ext: 201) at 021-35311861-64 or email at info@vis.com.pk.



Javed Callea
Advisor

Applicable Rating Criteria:
Industrial Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
Rating the Issue (August 2023)
https://docs.vis.com.pk/docs/Rating-the-Issue-Aug-2023.
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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