Lahore: The Pakistan Credit Rating Agency Limited (PACRA) has assigned preliminary ratings to a medium-term Sukuk issuance by Mughal Iron and Steel Industries Limited, valued at PKR 2.5 billion. The move comes as the steel manufacturer seeks to bolster its liquidity and optimize working capital amidst a gradually improving economic environment.
According to PACRA, Mughal Iron and Steel, a prominent player in the steel manufacturing sector, has been navigating economic challenges such as high inflation and elevated interest rates. However, improvements in interest rates, exchange rate stability, and moderating inflation have recently spurred a revival in construction activity, benefiting the steel industry. This positive momentum is expected to continue, although the recovery remains gradual due to factors like high power tariffs and regulatory changes impacting profit margins.
Mughal Iron and Steel has strategically decided to focus on its ferrous segment, scaling back on non-ferrous operations due to pricing volatility and regulatory hurdles. The company anticipates growth driven by increased volumes and improved gross margins in ferrous operations. These improvements are supported by the commissioning of a coal-fired power plant under Mughal Energy, along with business modernization and restructuring initiatives.
The company plans to raise PKR 5 billion in total, divided equally between Term Finance Certificates (TFC) and Sukuk, to enhance its working capital and maintain a sustainable leverage ratio. The ratings for the Sukuk are supported by its security structure and other credit enhancement features. The success of the issuance remains contingent on achieving projected volumes, maintaining profit margins, timely debt servicing, and adhering to current leverage levels.
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