JCR-VIS Reaffirms Entity and PTC Ratings of Treet Corporation Limited

Karachi: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed medium to long-term and short term entity ratings of Treet Corporation Limited (TCL) at ‘AA-’ (Double A Minus) and A-1 (A-One), respectively. JCR-VIS has also reaffirmed preliminary medium to long term rating of TCL’s proposed PTC issue of Rs. 1.255 billion at ‘AA’. The outlook on the ratings is ‘Stable’.

The ratings take into account vast experience of Treet Group of Companies in the field of blade manufacturing. At the same time, diversification of the group into relatively low risk consumer segments like soap, packaging products including paper and board along with motorcycle assembling provides further comfort in terms of sustainable sources of other income. However, uninterrupted supply of imported raw material especially in blades will remain critical in assessing the company’s future business profile.

TGC has depicted steady growth in revenues over the years. During FY11, net sales were higher by 29%, which reported a further increase during 1H12 on annualized basis. In spite of rise in the input cost, gross margins depicted an improvement primarily on the back of robust blades, soap and packaging material business. Paper and board mill, acquired as a part of strategic backward integration during FY10, also started contributing towards the sales. The bottom line was supported by investment related income.

To reduce debt levels, TCL plans to issue Participation Term Certificates (PTC) of Rs. 1.255b for a period of 7 years under a tiered mechanism, which will be formally announced after obtaining necessary approvals from relevant authorities. The secured, listed, convertible participatory redeemable capital is being offered by way of a renounceable right offer to existing shareholders in accordance with their existing shareholding.

The PTC has a mandatory yearly conversion into common stocks at a predetermined price to the extent of 96.5 percent of the value of the issue price of PTC. The return on PTC is based on profit and loss sharing under a tiered mechanism. The PTC is being issued to partially replace existing mark-up based debt to mitigate the financial risk profile of the company as also to provide an opportunity of profit sharing to the investors in the PTC.

The preliminary rating of PTC issue takes into account the mandatory conversion feature of a significant value of the PTC into common stocks and its return being based on profit and loss sharing mechanism.

The ensuing risk mitigation through equity build up and risk management covenants incorporated in the PTC structure have also been factored in the assigned rating. Lien marking of investment in the shares of associated companies amounting to Rs. 250 million as trust security/property is also a key rating factor. PTC rating will be converted into final rating upon review of signed legal documents and finalization of the approval process of PTC.

For more information, contact:
Mr. Javed Callea
Advisor
JCR-VIS Credit Rating Company Limited
Tel: +9221 35311861 (10 lines) (Ext: 501)
Fax: +9221 35311872-3
E mail: javed.callea@jcrvis.com.pk

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