JCR-VIS Credit Rating Company Limited reaffirms entity ratings of Treet Corporation Limited at ‘AA-/A-1’

Karachi, December 10, 2013 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Treet Corporation Limited (TCL) at ‘AA-/A-1’ (Double A Minus/A-One). Rating assigned to Participation Term Certificates (TCLTC) has been reaffirmed at ‘AA’ (Double A). JCR-VIS has assigned preliminary rating of ‘A+’ (A Plus) to TCL’s proposed PTC issue of Rs. 510.2m. Outlook on the ratings is ‘Stable’.

TCL is the holding company of the Treet Group of Companies (TGC). The group, comprising six entities, is primarily engaged in the manufacturing and sale of razor blades, soaps, corrugation packaging, paper and board and motorbikes.

TGC has been operating for more than 30 years and exports to over 35 markets globally. The group’s on-going efforts to diversify product line with measured expansion in current business segments has kept the business risk under check and remains a key rating factor.

In a clearly articulated strategy to rationalize debt levels and, therefore, reduce financial risk, the group issued 96.5% convertible TCLTC of Rs. 1.25b in Oct,’12. Recently, the board has approved another PTC issue of Rs. 510.2m which will be offered to existing shareholders in the ratio of one PTC against four ordinary shares.

These PTCs will be unsecured and perpetual unless otherwise converted into ordinary shares at discretion of the issuer or winding up of the issuer. Payoff to PTC holders will be based on 3% of the face value (Rs. 40) of PTC or cash dividend for the year, whichever is higher.

The profit payment in cash related to both PTCs is tax deductible. Moreover, TCL has recently raised funds to the tune of Rs. 501.9m through a 15% rights issue. The proceeds from above mentioned issues will be utilized for financing production expansion, working capital requirements and repayment of borrowings, including export refinance.

Total debt of the company (excluding convertible portion of TCLTC) reduced considerably. The said reduction had a favourable impact on FFO to debt ratio. Debt leverage and gearing also showcased improvement.

The expansion in equity base through rights issue and mandatory equity conversion feature of the TCLTC is expected to improve leverage indicators of the company further, going forward. At the same time, with the decrease in debt levels, coverage ratio is expected to strengthen.

While sales of the group grew moderately in FY13, overall gross margins declined on account of rising electricity tariff, fuel cost as well as inflationary impact on salaries and wages. The company plans to set up a paper and board plant and is also seeking feasibility of a captive power project of up to 25MW to address the energy issue. These projects are projected to be financed through internal sources/equity financing.

In line with the revised Code of Corporate Governance, the company formed a Human Resource and Remuneration Committee. Provisions of the code that include appointment of independent director to the board and separation in the offices of the Chairman and Chief Executive Officer need to be complied with, to further strengthen the governance structure.

For more information, contact:
Ms. Sobia Maqbool
JCR-VIS Credit Rating Company Limited
Tel: at 021-35311861-70
Fax: +9221 35311872-3

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