PACRA Maintains Entity Ratings of Fazal Weaving Mills Limited with Rating Watch “Developing”

Lahore, November 06, 2019 (PPI-OT): The ratings of Fazal Weaving Mills Limited (Fazal Weaving) primarily reflect irrevocable and unconditional guarantee on all financial obligations by Fazal Cloth Mills Limited (Fazal Cloth) – the parent company. Over the years, the Company sustained its profitability despite challenging environment. Lately, textile industry suffered from low international commodity prices due to global economic slowdown. However, the impact was largely mitigated by rupee devaluation in FY19 and higher domestic prices of yarn.

The Company managed to sustain its export volumes which has yielded notable exchange gains in FY19 supporting margins and profitability. The Company has a stretched financial profile, characterized by significantly leveraged capital structure, high working capital cycle and modest coverages. Support from Fazal Cloth in the form of subordinated loans and guarantees provides comfort to the assigned ratings. Meanwhile, the Company is in final stages of merger with and into Fazal Cloth. Post-merger, all assets and liabilities of the Company will be transferred to Fazal Cloth. The merger is expected to conclude by end-Dec 2019. The rating watch “Developing” signifies ongoing merger activities.

The ratings are dependent upon continuation of irrevocable and unconditional guarantee on financial obligation by the parent company till completion of its merger. Meanwhile, improvement in margins, in turns, sufficient cash generation to fulfill its financial obligations amid high interest rates will remain critical.

For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com

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