PACRA Rating Report Engro Corp August 2010

8/3/2019 PACRA Rating Report Engro Corp August 2010

1/18


2/18

The Pakistan Credit Rating Agency LimitedHOLDING COMPANY

August 2010 www.pacra.com

RATING REPORT CONTENTS PAGESummary Report 1

Detailed Report:

Ratings 2 Profile 2 Ownership 3 Governance 3 Management 5 System and Controls 6 Performance 6 Capital & Funding 9

ANNEXURES

Financials I

Glossary II

Standard Rating Scale III

ENGRO CORPORATION LIMITED


3/18

The Pakistan Credit Rating Agency Limited

HOLDING COMPAN

RATINGS (AUGUST 2010)

ENGRO CORPORATION LIMITED

ECL]

Assigned to Engro Chemical Pakistan Limited

May May June June May

2006 2007 2008 2009 2010

AA

AA-

A+

AA+

FINANCIALDATAPKR (mln)

1H10* Dec-09* Dec-08*

otal Assets 152,699 132,105 80,802

quity 31,942 29,344 23,548

ong Term

orrowings89,244 84,142 40,768

Current Borrowings 14,329 3,678 4,953

Net Turnover 33,724 58,152 40,937

BITDA 6,898 9,018 8,072

ROE % 10.0 14.9 17.9

BITDA Interest

Cover (X)

4.1 4.1 4.6

otal Debt/ (Total

Debt + Equity)76.4 75.0 66.0

Consolidated figures for Engro Group

ANALYSTS

Arsalan Ahmed

+92 42 35869504

[email protected]

hangeer Hanif

+92 42 35869504

[email protected]

TFCS ISSUE

ECL is in the process of issuing TFCs of

PKR 4,000mln (including a green shoe

ption of PKR 2,000mln). The instrument

will have a tenor of 3 years, carrying fixed

rofit rate of 14.5% p.a., paid semi

nnually. The principal payment will be in

he 3rd year or early through put option. In

ase put option is exercised the investor will

ave to pay a service charge of 2% on the

rincipal. The TFC is secured by way of

irst ranking floating charge over all the

resent and future movable properties

including investments) of Engro

Corporation Limited but excluding presentnd future trademarks and copyrights of

ECL and excluding its shares in Engro

RATING RATIONALE AND KEY RATING DRIVERSThe ratings reflect ECLs articulated corporate center mandate aimed at creating value in excess of

sum of its parts. The salient features of this mandate include development of a central pool of execu

management capable of managing independent businesses, designation of a group CEO, strengthe

of the governance framework with independent directors, and a comprehensive framework

monitoring the performance of subsidiaries. The ratings incorporate ECLs diversified investmportfolio including a stable, indeed growing, fertilizer presence, wherein business risk is low. Altho

some ofthe companys subsidiaries are currently in the growth phase, a sustained dividend stream f

established enterprises supplements ECLs financial profile.These ratings are dependent upon the companys ability to implement a robust mechanism for provi

strategic guidance to all group companies while maintaining an effective control environm

Moreover, timely completion of the urea expansion project without significant delays, coupled w

growth and resultant profitability in other businesses, remains important. Meanwhile, effec

management of the groups financial risk, especially during the period prior to the planned gradualleveraging, remains critical for the companys ratings.

ASSESSMENTIncorporated in 1965, Engro Chemicals Pakistan Limited (ECPL) was renamed as Engro Corpora

Limited (ECL) on January 01, 2010, following a demerger of the fertilizer business to Engro Ferti

Limited (EFL). All assets/ liabilities of the fertilizer business have been transferred to Engro Fertil

with Engro Corporation carrying equity investments in subsidiaries and associates at cost. En

Corporation is now the holding company for all strategic investments including fertilizer operati

Engro Corporation has irrevocably and unconditionally guaranteed to each secured party, as def

under the pertinent finance documents, punctual performance by Engro Fertilizer of all its obligatiand undertakes that whenever Engro Fertilizer does not pay any amount when due, it must immedia

on demand by the inter-creditor agent (National Bank of Pakistan), pay that amount as if it were

principal obligor in respect of that amount.

As a holding enterprise, ECL aims to benefit from a more focused approach towards stratmanagement and enhanced governance. The company generates a monthly MIS Dashboarproviding a structured breakdown of information on predetermined key indicators for each group en

The company has also formulated an Executive Committee (ExCom), comprising Group CEO, Gr

CFO, Head Human Resource and all designated CEOs of subsidiaries/ associates. ExComs prim

function is to assess managerial qualities, while augmenting decision-making and consensus building

ECLs investment book (cost: PKR 25,352mln) include interests in companies engaged in (i) fertili(Engro Fertilizer Limited 100%), (ii) food & allied (Engro Foods Limited 100%, (iii) poproduction (Engro Energy (Pvt.) Limited 95% and Engro Powergen (Pvt.) Limited 100%), commodity export/ import (Engro Eximp (Pvt.) Limited 100%), (v) automation & con

engineering (Avanceon Limited 63%) (vi) PVC resins (Engro Polymer & Chemicals Limited 5and (vii) Storage (Engro Vopak Terminal Limited50%).

Engro Fertilizer Limited is currently the second largest producer of urea in the country (~22% asdesigned capacity). EFL, at present, is undergoing expansion (Enven 1.3), with added capacity

1,300,000tons expected to come online, with some delay, in 4Q10. Engro Foods Limited, engaged in

manufacture of dairy products, is currently in a growth phase and reported a loss of PKR 179mln

1H10. Engro Energy Limited, a 217MW combined cycle power plant, initiated commercial produc

in March 2010, as per the revised plan, posted a profit of PKR 379mln for 1H10. Engro Eximp (P

Limited, engaged in commodities import/export, reported a profit of PKR 973mln in 1H10. Avanc

Limited, acquired in 2007, provides process control solutions to industrial units and posted a los

PKR 94mln in 1H10. Engro Polymer & Chemicals Limited, the only listed investment, has recently

commissioned its VCM production (backward integration) after a lag due to fire incident in Decem

The plant is expected to reach its optimum capacity by end-3Q10. The company reported a loss of P

449mln in 1H10. Engro Vopak Terminals Limited reported a profit of PKR 518mln in 1H10.

The company envisages continued focus on three core sectors: 1) Fertilizer, 2) Food and 3) Enewhile diversifying into other lucrative business opportunities. The role of ECL will be limited in teof operational decision making but more on the lines of oversight and providing strategic direction

terms of profitability, the companys income stream would stem from dividends received frominvestments and, therefore, expected to be highly correlated to the performance of group entities

their ability to generate positive cash flows. Total subsidiary income in 2009 amounted to P

1,885mln (2008: 2,605mln) emanating from Engro Eximp (Pvt.) Limited (PKR 1,435mln) and En

Vopak Terminal Limited (PKR 450mln). Going forward, Engro Energy is expected to contri

towards ECLs dividend income, followed by Engro Fertilizer in 2011. Engro Polymer would fosuit once its VCM plant is completely functional.

With the issue of TFCs of PKR 4,000mln, ECLs standalone capital structure would experieleveraging. This adds to financial risk profile of the group as its consolidated debt (including short

debt)has crossed PKR 100bln mark by end-June10 with very high level of gearing. Nevertheless, ma

with the commissioning of Enven 1.3, the debt is expected to gradually decrease over the medium te

PROFILE

Engro Corporation Limited (formerly Engro Chemicals Pakistan Limited) is listed on all three sexchanges of the country. Dawood Group holds a majority stake (~48%) in ECL. ECL has a thirmember board. The chairman of the board is Mr. Hussain Dawood, a well known professional veteran.

Entity NEW PREVIOUS*

Long Term AA AA

Short Term A1+ A1+

Secured

TFC I

PKR4,000mln AA -


4/18


HOLDING COMPANY

1.RATINGSVery high credit

quality

ENTITY NEW PREVIOUS*

Long Term AA AA

Short Term

TFCsPKR 4,000mln

A1+

AA

A1+

-

* Assigned to Engro Chemical Pakistan Limited.

2.PROFILE

ECPL renamed asEngro Corporation

Limted (ECL)

A diversifiedconglomerate

Significant fertilizerpresence

2.1 Incorporated in1965, Engro ChemicalPakistan Limited was

renamed as Engro

Corporation Limited

(ECL) on January 01,

2010, following a

demerger of the fertilizer

business to Engro

Fertilizer Limted (EFL).

ECL is listed on all the

stock exchanges of the

country. The share price

movement has been largely consistent with the market trend since the reopening of tradin December 2008. The chart demonstrates ECLs strong capacity to raise sizable capitin times of any contingency, as evidenced in the companys history as well. ECLs heaoffice is located in Karachi.

2.2 ECL is a holding company mainly responsible for overseeing and managing thperformance of its subsidiaries and associates, covering business interests in fertilizer

food and commodities, power, engineering, chemicals and storage. In order to facilitat

the transition towards the holding company structure, the company sought structura

recomendations from McKinsey & Company; a reputed management consultancy firm

As a result of the transition, the ECL aims to seek benefit from a more focused approac

towards strategic management and enhanced governance. The chart below displays ECL

subsidiaries and joint venture/ associated companies along with the companys ownershiand investment (at cost) in each:

June June April May May June June May

2 00 3 2 00 4 2 00 5 2 00 6 2 00 7 2 00 8 2 00 9 2 01 0

AA

AA-

A+

AA+

70% 30%

Engro Foods Supply Chain

(Pvt.) Ltd.

100%

(PKR 523mln)

Wholly

owned

b i d

i

Subsidaries

Engro Powergen Ltd.

100%

(PKR 387mln)

Engro Vopak Terminal

Ltd. (Joint Venture)

50%

(PKR 450 mln)

Engro Polymer &

Chemicals Ltd.

56%

(PKR 3,651mln)

Avanceon Ltd.

63%

(PKR 382mln)

Engro Energy Ltd.

95%

(PKR 3,040mln)

Engro Corporation Limited

as at Jun10

Engro Foods Ltd.

100%

(PKR 6,216mln)

Engro Fertilizers Ltd.

100%

(PKR 10,739mln)

Engro EXIMP Ltd.

100%

(PKR 480mln)

Engro Management

Services Ltd.

100%

(PKR 2.5mln)

-

80

160

240

320

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Volume(Thousands)

Stock Price - Volume chart

Volume (L.H.S.) Closing price (R.H.S.)

KSE - 100 Linear (Closing price (R.H.S.))


5/18


HOLDING COMPANY

38%

10%

3%3%

18%

28%

48%

Shareholding Patternas at Dec09

Dawood Hercules Chemicals Ltd Associated Companies

Direct ors & Rela ted Pa rt ie s Pub lic Sect or Co rp ora tio ns

Financial Institutions Others

2.3 ECL and its subsidiaries have won numerous awards from the Karachi StocExchange (KSE) and the Management Association of Pakistan. In addition, the compan

attained 3-Star rating in Environment Performance benchmarking carried out by Britis

Safety Council as well as Investor Relation Award by the CFA association of Pakistan. I

addition, Engro is ranked as the top Pakistani company for corporate social responsibilit

in the first Asian Sustainability Rating 2009.

3.OWNERSHIP

Majority owned byDawood Group

Dawood Groupadiversified business

group

3.1 Dawood Group (DG) holds amajority stake in ECL through direct

and indirect shareholding. DG, a

distinguished and trusted name in

Pakistan, traces its origins back to

almost a century ago. The current

shareholding pattern of the company

is shown in the graph.

3.2 Dawood group is primarilyengaged in the business of fertilizer,

textiles, technology business and

insurance. The journey of the group

started in 1949 with the foundation

of first group company -

Lawrencepur Woollen & Textile Mills. The group made inroads into the fertilizer secto

by setting up Dawood Hercules Chemicals Limited (DAWH) in 1968. DAWH, listed o

Lahore and Karachi Stock Exchange, has a nameplate capacity of 445,500MT p.a. wit

approximately 115% capacity utilization at end Dec09. The company manages one of th

highly recognized brands among fertilizer communityBubber Sher. With the passage o

time, some other group concernsDawood Cotton Mills Limited, Burewala Textile MilLimited, Central Insurance Company, Dawood Corporation (Pvt.) Limited, and DiloLimited were also founded. In 2004, all the textile companies of the Dawood group wer

merged in a single entity - Dawood Lawrencepur Limited. During the same year, th

group also acquired majority stake in Inbox Business Technologies (Pvt.) Limited, a

information technology firm. The group runs a small brokerage house by the name o

Elixir Securities Pakistan (Pvt.) Limited.

4.GOVERNANCE

Experienced BoDmembers with

diverse professional

background

Four independentdirectors

Strong committeesstructure

4.1 ECLs board of directors comprises thirteen members including the CEO. Apafrom the CEO, there is equal representation on the board: four members from the Dawoo

Group, four from the companys management and four independent directors. Thpertinent details of all board members are given as follows:

No. Name Key Experience Representative Committees

1Mr. Hussain Dawood

[MBANorthwesternUniversity, USA]

ChairmanEngro Corporation Limited

ChairmanDawood Hercules Chemicals Limited

ChairmanPakistan Poverty Alleviation Fund

DGChairman - Boar

Compensation

Committee

2

Mr. Samad Dawood

[BScUniversity CollegeLondon, UK]

CEODawood Corporation Limited

ChairmanCentral Insurance Company Limited

DirectorSui Northern Gas Pipelines Limited

DG Audit Committe

3

Mr. Shahzada Dawood

[LLB & MA Global Textile

MarketingUniversity of

Philadelphia, USA]

CEODawood Hercules Chemicals Limited

ChairmanDawood Lawrencepur Limited

DirectorNational Mines (Pvt.) Limited

DirectorSach International (Pvt.) Limited

DGBoard Compensat

Committee


6/18


HOLDING COMPANY

4.2 The board has two committees namely Board Compensation Committee and BoarAudit Committee.

4.2.1 Board Compensation Committee, comprising four members, is headed by MHussain Dawood. The committee is responsible for decisions relating to performanc

evaluation, development and succession of CEOs and top Executives. Also, the committeensures human resource policies are aligned to deliver robust talent management proces

across various Engro Companies while establishing group wide standards /policies.

4.2.2 Board Audit Committee, comprising four members, is headed by Mr ShabbHashmi. The committee assists the board in fulfilling its oversight responsibilitie

primarily in reviewing and reporting financial and non-financial information t

shareholders, systems of internal control and risk management and the audit process. I

has access to all information from management and can consult directly with the externa

auditors or their advisors as considered appropriate. The CEO and CFO attend th

meetings by invitation. The committee also privately meets with the external auditors a

least once a year. After each meeting, the chairman of the committee reports to the Board

4Mr. Isar Ahmed

[FCA & MA Economics]

Director Strategy and Business - Dawood Hercules

Chemicals Limited

Ex Head of Business UnitReckitt Benckiser

Ex MDHaleeb Foods Limited

DG Audit Committe

5Mr. Asad Umar

[MBAInstitute of BusinessAdministration]

CEOEngro Corporation Limited

CEOEngro Fertilizers Limited

Director State Bank of Pakistan

DirectorPakistan Institute of Corporate Governance

Employee -

6

Mr. Ruhail

Mohammad

[CFA & MBAInstitute ofBusiness Administration]

Group CFO

Ex CFOTrans Gulf Finance Corporation

Ex CEOSigma Leasing (Pvt.) Limited

Employee -

7Mr. Khalid Mansoor

[Chemical Engineer]

CEOEngro Energy Limited

CEOEngro Powergen LimitedEmployee -

8

Mr. Asif Qadir

[Chemical EngineerColumbia, USA]

CEOEngro Polymer & Chemicals Limited

DirectorEngro Powergen Limited

DirectorEngro Energy Limited

Employee -

9

Mr. Khalid Subhani

[Chemical Engineer & MBAUniversity of Berkley,

USA]

Designated CEOEngro Fertilizer Limited

DirectorEngro Polymer & Chemicals Limited

DirectorEngro Energy Limited

Employee -

10

Mr. Shabbir Hashmi

[MBAJF Kennedy

University, USA]

Private Equity ConsultantActis Assets Limited Independent

ChairmanAudCommittee

Board Compensat

Committee

11

Mr. Arshad Nasar

[MA Economics & PoliticalScience]

DirectorPakistan Industrial Development

Corporation

Ex CEO & chairmanOil & Gas DevelopmentCompany Limited

Ex MDCaltex Oil Pakistan

IndependentBoard Compensat

Committee

12

Mr. Ali Ansari

[BA EconomicsRichmondCollege, UK]

DirectorNational Clearing Company of PakistanCEODewan Drilling Limited

Ex CEOAKD Securities

Ex COOCredit Lyonnais Securities

Independent Audit Committe

13

Mr. Saad Raja

[MA ManagementLondonBusiness School, UK]

Asset ManagementIndustrial Bank of Japan Independent -


7/18


HOLDING COMPANY

5.MANAGEMENT

Highly professionalmanagement

Principal operationcommittees

5.1 The management of ECL liesin the hands of five executives

namely Mr. Asad Umar (CEO), Mr.Ruhail Muhammad (Group CFO),

Mr. Tahir Jawaid (Human Resource

& Public Affairs), Mr. Naveed

Hashmi (Corporate Affairs) and Mr.

Andalib Alavi (General Manager

Legal).

5.2 Mr. Asad Umar, CEO, anMBA from the Institute of Business Administration, Karachi, has prior experience of ove

20 years with Engro Group. He has also previously served on the boards of the Oil an

Gas Development Company, Karachi Stock Exchange and Pakistan State Oil. Currently

he is the chairman of all Engro subsidiaries and joint ventures as well as the chairman othe Pakistan Chemical and Energy Sector Skill Development Company. In addition, M

Umar serves on the board of the State Bank of Pakistan as well as the Pakistan Busines

Council. He was awarded the Marketing Association of Pakistan Corporate Award o

Excellence in March 2010. Mr. Ruhail Muhammad, CFA and a MBA in Finance (gol

medalist) from the Institute of Business Administration, is currently the group CFO a

well as a member of the boards for all Engro subsidiaries. Ruhail joined Engro Polyme

and Chemicals Limited in 1998, before which he worked for Sigma Leasing Corporatio

Limited and TransGulf Finance Corporation. Mr. Tahir Jawaid is responsible fo

overseeing all human resource activities across ECL as well as its subsidiaries. He holds

Master of Science in Industrial Engineering from the University of Houston, USA and ha

previously worked in the US in various capacities for system and design engineerin

companies. Mr. Naveed A. Hashmi, GM Corporate Audit, joined Engro in 1985 aftehaving worked in the Pakistan Tobacco Company Limited. An MBA from the Institute o

Business Administration, Mr. Hashmi currently manages the internal audit function of th

company. Mr. Andalib Alavi is a Bar-at-Law from Lincolns Inn as well as an LLB from

the London School of Economics, UK. He is responsible for overseeing all legal affairs o

Engro group companies. Mr. Alavi has prior experience with Surridge & Beecheno an

Abraham & Sarwana before becoming a part of Engro as a legal advisor in 1992.

5.3 ECLs quality of management remains its core strength, and is duly recognized foits highly professional and long-term outlook. The top management is highly qualified an

well experienced in their respective fields. ECL has an annual appraisal process in place

which assesses employee performance against agreed criteria and identifies trainin

requirements, if any, to enhance overall standard of performance. At executive leveleadership qualities will be assessed through the Executive Committee (ExCom

evaluations. ECL maintains its compensation packages in line with the minimum 75

percentile in the corporate sector of Pakistan as ascertained by the annual Watson Wya

Compensation Survey.

5.4 The company has three principal operation committees, a) Executive Committe(ExCom), b) Corporate Health, Safety and Environment Committee and c) Compensation

Organization and Employee Development Committeeall headed by the Chief ExecutivOfficer. The following table gives an overview of the functions of these committees:


8/18


HOLDING COMPANY

6.SYSTEMS &CONTROLS

Strong controlenvironment

SAP

6.1 ECL maintains an effective control environment with clear reporting lines anwell defined policies and procedures. The review and accountability function runs throug

the entire organizational structure. The role of the company, as a holding entity, is t

provide for and sustain the activities of its investments as a whole. Therefore, to maintai

proper monitoring and thorough oversight of its strategic investments, ECL generates

monthly MIS for its board members Dashboardthat provides a structured breakdow

of information on predetermined key indicators for each group entity. From a holdincompany perspective, this enables the management at ECL to review/ monitor th

performance of each individual subsidiary independently, in turn, facilitating decisio

making at business as well as corporate level. Further, the company is planning to launc

an Enterprise wide Risk Management (ERM) initiative following the completion of th

urea expansion project in order to assess crucial firm wide risks and their sources.

6.2 ECL has SAP ERP (Systems, Applications and Products) in place. Currently, thsystem covers financial, accounting and human resource applications of both ECL an

EFL. ECL is working towards enhancing the effectiveness of this system in order to full

realize the benefits emanating from complete implementation. The technical services fo

the implementation of the SAP ERP are provided by IBM Global Services whereas th

software itself has been developed by SAP AG (MalaysiaRegional Office). IBM GlobServices is responsible for ensuring the smooth transition from the existing system; th

full implementation of which is expected to be completed by the end of 2010. Goin

forward, ECL intends to enhance the scope of SAP capabilities across key subsidiaries.

6.3 ECLs in-house internal audit function is responsible for evaluating financial anoperational procedures to ensure adequacy of internal controls, reporting directly to th

audit committee for all critical issues.

7. PERFORMANCE

Significant holdingin robust fertilizer

sector

Continued focus onthree core sectors

7.1 As a holding company, the assets of ECL comprises equity stakes held at coprice in its subsidiaries/ associates with a total investment book of PKR 23,730mln o

which PKR 10,740mln

constitutes ECLs holding inEFL. The main income

component for ECL isdividends received from its

investments. A graph

illustrating historic dividend

patterns is given. The total

investment income reported

for 2009 amounted to PKR

1,885mln (2008: PKR

2,605mln) emanating from

Engro Eximp (Pvt.) Limited

(2009: PKR 1,435mln) and

Engro Vopak TerminalLimited (2009: PKR 450mln). Dividend for 1H10 is only from Engro Vopak with othe

investments yielding dividends towards the end of 2010. Meanwhile, a group-wide pictur

Committee Members Functions Frequen

Executive Committee

(ExCom)

Asad Umar CEO ECL

Ruhail Mohammad CFO ECL

Tahir Jawaid - VP HR

All designated CEO's of subsidiaries

Ali Akbar - Secretary

Responsible for addressing appropriate operational issues plus

managerial appointments at subsidiary/ associate level. The

committee operates as an advisory body for the Group CEO, and

helps in bringing synergy amongst the various businesses within

the Group, while augmenting decision making and consensus

building.

Quarterl

Corporate Health, Safety and Environment

(HSE) Committee

Asad Umar CEO ECL

All designated CEOs of subsidiaries

Responsible for providing leadership and strategic guidance on

Health, Safety and Environment improvement initiatives while

ensuring compliance with regulatory standards and international

benchmarks.

Quarterl

Compensation, Organization and Employee

Development (COED) committee

Asad Umar CEO ECL

All designated CEOs of subsidiaries

Responsible for the review of Compensation, Organization and

Employee Development matters of all people excluding employee

directors and senior executives.

Quarterl

0

500

1,000

1,500

2,000

2,500

3,000

FY07 FY08 FY09 1H10

PKRinmln

Dividend History

Engro Vopak Terminal Ltd. Engro Polymer & Chemicals Ltd.

Engro Eximp (Pvt.) Ltd.


9/18


HOLDING COMPANY

of each entitys respective revenueand profitability for the six months

ending June10 is shown.

7.2 Going forward, thecompany envisages continued focuson three core sectors: 1) Fertilizer,

2) Food and 3) Energy, while

diversifying into other lucrative

business opportunities such as

chemicals, storage services,

business automations, import/

export of commodities. The role of

the holding company itself will be

limited in terms of operational

decision making but more on the

lines of oversight and strategic

direction. In terms of profitability,the companys income stream isexpected to be highly correlated to

the performance of group entities

and their ability to generate

positive cash flows. Although

some ventures of the company are

likely to remain non-earning in the

initial phase, they are expected to

develop a stable revenue stream

over the medium term; Engro

Energy is expected to contribute

towards ECLs dividend income, followed by Engro Fertilizer in 2011. Engro Polymewould follow suit once its VCM plant is completely functional.

SUBSIDIARY PERFORMANCE:

7.2.1 FERTILIZER: EFL, currently the second largest producer of urea in the country, in the business of manufacturing and marketing of fertilizers, registering a healthy bottom

line of PKR 2,012mln during 1H10. EFL markets urea under the brand name of Engr

Urea, MAP under the brand name ofZorawar, NPK under Zarkhez and DAP as Engr

DAP. EFLs urea plant, with a capacity of 975,000tons per annum, is located at Dharkwhereas NPK plant is situated at Port Qasim. EFLs urea expansion project (Enven 1.3originally expected to commence commercial production by July 2010, has bee

rescheduled to 4Q10. This is not expected to have a major impact on the budgeted projeccosts, which stand at an estimated USD 1,050mln including USD 30mln impact of rupe

devaluation. However, any delay beyond Sep10 would result in shortfall of projected cas

flows depending upon the related extent. The management expects that the project woul

enter commissioning phase by end-Sep10 and after satisfactory performance is achieved

COD would be announced. At Jun10, EFL is projected to incur PKR 4,000-6,000ml

more to complete Enven1.3. This will be met through a combination of equity (prof

retention) and debt. EFL has available unutilized line of PKR 1,725mln from syndicate

facility, and cash & cash equivalent of around PKR 2,092mln. In addition, EFL ha

financed its working capital at end-June10 through an amount which was taken out of loa

for the expansion project this may be freed by utilizing committed short term credfacility of approximately PKR 3,500mln. Meanwhile EFL, if need arises, may receive

fresh injection from ECL after the parent completes issuance of its first TFC (PKR4,000mln). The enhanced capacity (2,275,000 tons p.a.) is expected to increase EFLmarket share to ~35% (currently 23%). Meanwhile, EFL would continue compensatin

9,421

9,833

6,597

2,007

5,000

1,072 757

Revenues (PKR mln)

EFL

Engro Foods

EPCL

EPL/EEL

Engro Eximp

Engro Vopak

Avanceon

2,012

(179)

(449)

379

973

518

(94)

PAT (PKR mln)

EFL

Engro Foods

EPCL

EPL/EEL

Engro Eximp

Engro Vopak

Avanceon


10/18


HOLDING COMPANY

fall in production due to gas curtailment (currently: 7%) through price hike inline wit

other industry players.

7.2.2 Engro Eximp (Pvt.) Limited (EEPL), a wholly owned subsidiary of ECestablished in 2002, is engaged in commodities export/import business. EEPL, fo

marketing imported phosphatic fertilizers, would be using Engro Fertilizer Limited. Thi

means that EEPL would be carrying all inventories on its own books. The compan

reported a profit of PKR 1,435mln in 2009 (1H2010: PKR 973mln).

7.2.3 FOODS: Engro Foods Limited, a wholly owned subsidiary established in 2005focuses on the dairy business. The company initially set up a processing plant in Sukku

with milk storage capacity of 300,000 liters/day and UHT (ultra heat treatment) mil

processing capacity of 200,000 liters/day. In 2007, another plant was installed in Sahiw

with a cost of PKR 3,000mln, having a processing capacity of 250,000 liters/day alon

with capability of producing tea whitener. With the added production from this new plan

the market share of the company in the UHT milk segment increased to 38%, makin

Engro Foods the market leader in this respect (Nestle: 37%). Engro Foods has als

installed an advanced ice cream plant in Sahiwal provided by Tetra Pak Hoyer with production capacity of 8mln liters/annum; marketing its products under the brand nam

Omore. The company is currently in the growth phase and reported a loss of PK434mln in 2009. Subsequently, the companys performance has improved with a total nloss of PKR 180mln as of end June10 with a profit of PKR 149mln posted by the dairsegment for the same period. Engro Foods entered the juice segment in May10 with th

brand name of Olfrute initially in four flavors. The company has also made inroads int

the rice export market exclusively focused upon basmati rice. The project, having capacity of 20,000mt per annum, is anticipated to commence commercial procuremen

and production by November 2010, under the purview of Engro Food Supply Chai

Management (Pvt.) Limited, formed specifically for the purpose.

7.2.4 POWER:Engro Powergen (Private) Limited (EPL), a wholly owned subsidiary oECL, has been set up with an aim to act as a negotiation window for all initiatives of th parent in the energy sector. The first outcome of ECLs effort is Engro Energy Limite(EEL), which was formed in 2006 to tap power generation opportunities. EEL has

combined cycle power project with net output of 217 MW, based on low BTU and hig

sulphur permeating gas from Qadipur gas field in Ghotki district. The project has a tota

cost of USD 205mln and became operational in March 2010 as per the revised schedule

EEL posted a profit of PKR 379mln for 1H10. Meanwhile, EPL has entered into a join

venture with the Sindh Government, forming the Sindh Engro Coal Mining Compan

(SECMC), for the mining, exploration and development of Thar Coal fields. The tota

project cost (including a power plant of 1200MW) will be ~USD 3,000mln, of whic

exploration cost is estimated to be around PKR 1,000mln. The exploration cost

expected to be shared 60% by ECL and 40% by the Sindh government. A pre-feasibilitand environment impact assessment is currently underway and is expected to b

completed during 2H2010 (cost: USD 3-5mln). During Mar10, SECMC signed two MoU

one with Sindh Coal Authority for obtaining an exploration license and another wit

PEPCO for supplying coal to PEPCOs 1,200MW thermal power plant, subject tavailability of excess coal supply.

7.2.5 ENGINEERING: Avanceon (formerly Engro Innovative Automation &Engineering (Pvt.) Limited) provides process control solutions to leading industrial uni

in the country. In early 2007, EIAL acquired a 70% stake in Advanced Automation L

(AALP), a company providing industrial solutions in automation controls and allie

services in the United States. To finance this transaction, ECL injected PKR 300mln. Th

company reported a profit of PKR 24mln in 2009. Avanceon posted a loss of PKR 94mlat end 1H10 though US operations were in profits (PKR 47mln).


11/18


HOLDING COMPANY

7.2.6 CHEMICALS:Engro Polymer and Chemicals Limited (EPCL) is mainly involvein manufacturing, marketing and selling of PVC. EPCL carried out a USD 240ml

expansion and back integration project which came online in late 2009. The projec

included setting up a new PVC plant, enhancing the manufacturing capacity to 150,00

tons per annum (current 100,000 tons per annum) and a backward integrated facilit

(VCM) with a capability to produce other intermediary products and caustic soda

Subsequent to commissioning of the project, a fire broke out in December 2009 in th

scrubber section of the companys VCM plant, due to which it was shut down to limit th

losses. The VCM plant is currently in the commissioning phase running at 70-80%capacity. After installation of scrubber expected to be done in Sep10the plant woulachieve full production capacity450tons/day (nameplate 600tons/day). EPCL, to financthe cost overrun of ~PKR 2,500mln, made a right issue during April10 amounting PK

1,430mln. The company reported a loss of 193mln in 2009 (1H10: loss of PKR 449mln).

7.2.7 STORAGE: Engro Vopak Terminal Limited (EVTL) is an equally owned joinventure with Royal Vopak of the Netherlands. The facility comprises an integrated liqui

chemical jetty cum storage. The company has also set up LPG storage facility and haexclusive rights to handle bulk liquid chemicals at Port Qasim. The company also adde

Ethylene storage capacity in 1Q2009. EVTL posted a profit of PKR 917mln in 200

(1H10: 518mln).

8. CAPITAL &

FUNDING

Assets/ liabilitiestransferred to EFL

Corporateguarantee to EFL

High quantum ofconsolidated debt

TFCs in the offing

8.1 Following the demerger ason January 01, 2010, all fertilizer

assets/ liabilities were transferred to

the balance sheet of EFL with ECL

carrying the equity investment in

subsidiaries at cost. Nevertheless,

following the demerger, un-

appropriated profits of ECPLamounting to PKR 9,250mln, as

well as a cash & bank balance of

PKR 3,501mln at end Dec09, have

been retained on the books of ECL.

The capital structure of the

company, pre and post demerger are

given in the chart.

8.2 With the issue of TFCs ofPKR 4,000mln, ECLs standalone capital structure would experience leveraging. Thgroup, with a consolidated debt (including short term borrowings) of ~PKR 103bln and

debt-to-equity ratio of 76:24 at Jun 10 excluding the comfort to be derived from thultimate parents (Dawood Hercules) low leveraged capital structure remains highlleveraged. Nevertheless, with the commissioning of Enven 1.3, the debt is expected t

gradually decrease over the medium term. In the meantime, the groups ability to raisrequisite funding through capital and/or debt markets largely mitigates the associate

risks.

8.3 Engro Corporation has irrevocably and unconditionally guaranteed to eacsecured party, as defined under the pertinent finance documents, punctual performance b

Engro Fertilizer of all its obligations and undertakes that whenever Engro Fertilizer doe

not pay any amount when due, it must immediately, on demand by the inter-creditor agen

(National Bank Pakistan), pay that amount as if it were the principal obligor in respect o

that amount.

8.4 TFCs Issue: ECL is in the process of issuing TFCs of PKR 4,000mln (includina green shoe option of PKR 2,000mln). TFCs would be primarily marketed among reta

-

25,000

50,000

75,000

100,000

125,000

150,000

Pre de-merger

(consolidated)

Dec 31,2009

Post de-merger

(consolidated)

June30, 2010

Post de-merger

(stand alone)

PK

R(mln)

Capital Structure

Equity Borrowings

Planned


12/18


HOLDING COMPANY

investors and thereafter listed on the stock exchange. The proceeds of the issue ar

expected to be utilized for ECLs own working capital requirement with a major portiobeing deployed in Engro Fertilizers. The salient features of the instruments are listed ithe following table.

Proposed TFCs

Issue size PKR 4,000mln (including green shoe option of PKR 2,000mln)

Tenor 3 years

Profit Rate 14.5% p.a.

Principal

Repayment

At the end of 3 years or early through Put Option. Incase the put option is exercised; the

investor has to pay service charges of 2% on the principal.

Security The TFC is secured by way of first ranking floating charge over over all the present and futuremovable properties (including investments) of Engro Corporation Limited but excluding

present and future trade marks and copyrights of ECL and excluding its shares in Engro

Energy Limited and Engro Polymer & Chemicals Limited.

Trustee IGI Investment Bank Limited

AnalystsArsalan Ahmed

+92 42 3586 9504

[email protected]

Jhangeer Hanif+92 42 3586 9504

[email protected]

Disclaimer:

PACRA has used due care in preparation of this document. Our information has been obtained from sources we consider to be reliable but its

accuracy or completeness is not guaranteed. PACRA shall owe no liability whatsoever to any loss or damage caused by or resulting from anyerror in such information. None of the information in this document may be copied or otherwise reproduced, stored or disseminated in whole

or in part in any form or by any means whatsoever by any person without PACRAs written consent . Our reports and ratings constitute

opinions not recommendations to b or to sell


13/18

The Pakistan Credit Rating Agency L imi ted

Engro Corporation Limited (formerly Engro Chemical Pakistan Limited)

BALANCE SHEET (PKR in million)

For the year ending 30-Jun-10 1-Jan-10 31-Dec-09 31-Dec-08

Unaudited Split

A NON-CURRENT ASSETS

1 Operating Fixed Assets - Owned and Leasehold 86.03 54.64 69,517.51 33,395.76

2 Intangible Assets - - 122.70 122.86

3 Other Non-Current Assets - 2.79 331.69 354.89

Non-Current Assets 86.03 57.43 69,971.91 33,873.51

B INVESTMENTS

1 Associates / Subsidiaries

a. Equity 25,352.90 23,727.80 12,988.66 11,091.86

b. Debt Securities / Loans 241.86 - - -

25,594.77 23,727.80 12,988.66 11,091.86

1 Investment Property - - - -

2 Other Investments

a. Fixed Income/Money Market Funds 851.86 241.91 450.86 67.81

b. Term Deposit - - - -

851.86 241.91 450.86 67.81Investments 26,446.63 23,969.71 13,439.51 11,159.67

C CURRENT ASSETS

1 Inventories

a. Stores and Spares - - 961.12 957.24

b. Stock-in-trade- raw material - - 303.99 1,142.83

finished goods - - 118.62 3,529.04

- - 1,383.72 5,629.11

2 Trade Receivables - - 2,514.43 261.51

3 Other Current Assets 65.67 225.08 1 2,444.52 1 7,668.66

4 Cash and Bank Balances 754.14 3,501.22 3,955.34 1,687.04

Current Assets 819.81 3,726.29 10,298.01 15,246.32

D TOTAL ASSETS (A+B+C) 27,352.47 27,753.43 93,709.44 60,279.50

E CURRENT LIABILITIES

1 Borrowings

a. Current portion of long term debt - - 830.70 94.93

b. Short term debt - 0.94 195.75 1,711.28- 0.94 1,026.45 1,806.21

2 Trade Payables 161.44 151.53 593.37 840.72

3 Other Current Liabilities 113.82 - 4,673.55 3,034.11

5 Dividend Payable - 102.10 102.10 309.29

Current Liabilities 275.26 254.56 6,395.47 5,990.32

F NON-CURRENT LIABILITIES

1 Borrowings - - 58,565.35 27,756.71

2 Due to Associates - - - -

3 Other Non-Current Liabilities 0.66 0.90 1,860.38 3,448.39

Non-Current Liabilities 0.66 0.90 60,425.73 31,205.11

G NET ASSETS (D-E-F) 27,076.55 27,497.97 26,888.24 23,084.07

H SHAREHOLDERS' EQUITY

1 Ordinary Share Capital 3,277.37 2,979.43 2,979.43 2,128.16

2 Preference Share Capital - - - -

3 Share Premium Account 10,550.06 10,550.06 10,550.06 7,152.724 Revaluation Reserve

a. Fixed Assets - - - -

b. Investments - - - -

- - - -

5 Revenue Reserves 4,506.36 4,717.50 4,107.78 6,892.06

6 Unappropriated Profit 8,742.76 9,250.98 9,250.97 6,911.12

Shareholders' Equity 27,076.55 27,497.97 26,888.24 23,084.07

0.00

1 Foreign exchange forward contract


14/18


Engro Corporation Limited (formerly Engro Chemical Pakistan Limited)PROFIT & LOSS ACCOUNT (PKR in million)

For the year ending 30-Jun-10 31-Dec-09 31-Dec-08Unaudited

A Turnover

1. Own Manufactured 16,136.46 15,508.82

2. Purchased Product 14,035.06 7,808.38

- 30,171.52 23,317.20

B Operating Costs - (23,240.18) (17,120.64)

C Gross Profit - 6,931.34 6,196.56

D Operating Expenses

1 Administrative and General Expenses (80.39) - -

2 Selling and Marketing Expenses - (1,945.18) (1,657.82)

(80.39) (1,945.18) (1,657.82)

E Operating Profit / (Loss) (80.39) 4,986.17 4,538.75

F Income From Associates

1 Dividend 180.00 1,885.00 2,605.40

2 Share of Profit/(Loss) - - -

180.00 1,885.00 2,605.40

G Others

1 Profit/(Loss) on Sale of Assets - 23.60 69.30

2 Income from Investments - - -

3 Surplus / (Deficit) on revaluation - - -

4 Royalty Income * 127.74 - -

5 Other Income/ Expenses 93.32 (378.92) (520.56)

6 Exchange Gain/(Loss) - - 18.04

221.06 (355.32) (433.21)

H Profit / (Loss) before Financial Charges 320.67 6,515.85 6,710.93

I Financial Charges

1 Interest Income 147.64 19.67 2.592 Interest Expense (1.60) (1,320.58) (1,508.95)

146.04 (1,300.91) (1,506.35)

J Profit / (Loss) before Taxation 466.71 5,214.94 5,204.58

K Taxation (81.09) (1,257.70) (964.14)

L Net Income / (Loss) 385.62 3,957.25 4,240.43

M Unappropriated Profit/(Loss) Brought Forward 9,250.97 6,911.13 4,116.63

N Available for Appropriation 9,636.59 10,868.38 8,357.06

O Appropriations

1 Reserves - - (14.26)

2 Dividends

a. Stock (297.94) - -

b. Cash (595.89) (1,617.40) (1,431.67)

(893.83) (1,617.40) (1,431.67)

P Effect of change in Accounting Policy (+/-)

Q Unappropriated Profit Carried Forward 8,742.76 9,250.98 6,911.13


15/18

The Pakistan Credit Rating Agency L imited


CASH FLOW STATEMENT (PKR in million)

For the year ending 30-Jun-10 31-Dec-09 31-Dec-08

Unaudited

A CASH FLOWS FROM OPERATING ACTIVITIES

1 Profit Before Tax 466.71 5,214.94 5,204.58

2 Adjustments for:

a. Depreciation/Amortization 7.93 672.43 653.73

b. Interest Expense/(Income) (146.04) 1,320.58 1,508.95

c. Others (+/-) - - -

(138.11) 1,993.01 2,162.68

EBITDA 328.60 7,207.95 7,367.26

3 Adjustments for other Non-Cash Charges/Items (256.52) (1,594.30) (2,474.80)

72.08 5,613.65 4,892.46

4 Changes in Working Capital

a. (Increase)/Decrease in Curent Assets (7.08) 2,466.18 (1,290.40)

b . Increase/(Decrease) in Curent Liabilities (Excl. Debt) (34.50) 695.58 (279.61)

(41.58) 3,161.76 (1,570.00)

Cash Generated from Operations 30.50 8,775.42 3,322.46

5 Financial Charges Paid (1.60) (758.95) (1,090.52)

6 Taxation Paid (41.56) (1,226.86) (574.98)

7 Others (+/-) (10.62) (250.72) (242.34)

(53.78) (2,236.53) (1,907.83)

Net Cash provided by Operating Activities (23.28) 6,538.89 1,414.62

B CASH FLOWS FROM INVESTING ACTIVITIES

1 Capital Expenditure (42.01) (36,352.36) (20,214.34)2 Proceeds from sale of Fixed Assets 3.10 58.45 87.73

4 (Purchase)/Sale of Investments - (1,896.80) (3,327.38)

5 Income from Investments 416.51 1,973.18 2,656.88

6 Investment in Subsidiary/Associated Companies (1,625.10) - (910.00)*

7 Others - (450.00) (622.00)**

Net Cash (Used in)/Available From Investing Activities (1,247.50) (36,667.53) (22,329.11)

C Cash In/(Out) Flow Pre-Financing (1,270.78) (30,128.64) (20,914.48)

D CASH FLOWS FROM FINANCING ACTIVITIES

1 Proceeds from Issue of Ordinary Shares - 4,248.60 3,382.21

2 Dividends Paid (624.43) (1,833.62) (1,306.10)

3 Others (+/-) - 335.27 -

(624.43) 2,750.25 2,076.12

E NET DEBT (INCREASE)/DECREASE (1,895.21) (27,378.39) (18,838.37)

F OPENING NET (DEBT)/CASH 3,501.22 (27,808.08) (8,969.71)

G CLOSING NET (DEBT)/CASH 1,606.00 (55,186.47) (27,808.08)

H NET (DEBT)/CASH

1 Long-Term Loans/Finances - (58,565.35) (27,756.71)

2 Short-term Loans/Finances - (1,026.45) (1,806.21)

- (59,591.81) (29,562.92)

3 Cash & Cash Equivalents 1,606.00 4,405.34 1,754.85

1,606.00 (55,186.47) (27,808.07)*

Advance to Engro Eximp Private Limited**

Payment to Engro Foods Limited for acquisition of tax losse s


16/18



RATIO ANALYSIS

30-Jun-10 31-Dec-09 31-Dec-08

Unaudited

A EARNINGS/PROFITABILITY

1a Own Manufactured Products Growth n.a. 4.05% 44.29%

1b Purchased Products Growth n.a. 79.74% -37.20%

2a Gross Margin- Own Manufactured n.a. 38.87% 37.63%

2b Gross Margin- Purchased Products n.a. 4.69% 4.62%

3 Operating Margin n.a. 21.60% 28.78%

4 Pre-Tax Profit Margin n.a. 17.28% 22.32%

5 Net Profit Margin n.a. 13.12% 18.19%

6 Effective Tax Rate 17.38% 24.12% 18.52%

7 Average Interest Rate n.a. 2.22% 5.10%

8 Pre-Tax Return on Equity 1.72% 19.39% 22.55%

9 Return on Equity (ROE) 1.43% 15.84% 21.84%- Asset Turnover (Times) n.a. 7.63 0.39

- Net Profit Margin n.a. 13.12% 18.19%

- Financial Leverage (Times) 1.01 3.49 2.61

10 Return on Assets (ROA) 0.39% 5.36% 8.59%

B COVERAGE

1 Short-term Debt Payback (Years) n.a. 0.12 0.54

2 Total Debt Payback (Years) n.a. 6.79 8.90

3 Net Debt Payback (Years) (52.66) 6.29 8.37

4 Net Debt / EBITDA (4.89) 7.66 3.77

5 EBITDA Net Interest Cover (X) (2.25) 5.54 4.89

6 Net Interest Cover (X) (2.20) 5.01 4.46

C LIQUIDITY

1 Current Ratio (X) 6.07 1.68 2.55

2 Quick Ratio (X) 6.07 1.46 1.61

3 Average Inventory Held (Days) n.a. 4.77 40.86

4 Average Trade Debtors (Days) n.a. 30.42 13.07

5 Gross Cash Cycle (Days) n.a. 35.19 53.93

6 Average Trade Creditors (Days) n.a. 9.32 33.19

7 Net Cash Cycle (Days) n.a. 25.87 20.74

D FINANCIAL STRUCTURE

1 Current Debt/Total Debt n.a. 1.72% 6.11%

2 Total Debt/Equity n.a. 221.63% 128.07%

3 Net Debt/Equity -5.93% 205.24% 120.46%

4 Equity/Total Assets 98.99% 28.69% 38.30%

5 Total Debt/Adjusted Equity (Net of Rev. Surplus) -0.92% 220.70% 126.98%

6 Total Liabilities/Equity 1.02% 248.51% 161.17%

7 Total Debt/(Total Debt+Equity) n.a. 68.91% 56.15%


17/18


GLOSSARY OF TERMS USED BYPACRA(INDUSTRIAL CORPORATES)

DESCRIPTION METHODOLOGY

PROFITABILITY

1. Gross Profit Margin (%) (Sales less COGS) / Sales

2. Net Profit Margin (%) Profit After Tax / Sales

3. Return on equity (ROE) (%) Profit After Tax / Average Equity.

4. Return on assets (ROA) (%) Profit After Tax / Average Assets

COVERAGE

1. EBITDA PKR mln Earnings before interest, tax, depreciation and amortization.

2. Total Debt Pay-Back Period Years Total debt / Cash generated from operations

3. Net Debt Pay-Back Period Years Total debt less cash / Cash generated from operations

4. Net Interest Cover (x) Net profit before interest and taxes / Net Interest Expense +

Interest Capitalized

5. Ordinary Dividend Cover (x) Net income after tax but before extraordinary items /

Dividends paid and proposed

LIQUIDITY

1. Current Ratio (x) Current assets / current liabilities

2. Quick Ratio (x) Trade debtors, other debtors, liquid investments, cash and

deposits / current liabilities

3. Average Inventory Held Days Average Inventory for the year (excl. stores and spares) /

cost of goods sold

4. Average Trade Debtors Held Days Average trade debtors for the year / Sales

5. Average Trade Creditors Days Average trade creditors for the year / Cost of goods sold

6. Gross Cash Cycle Days Average inventory held plus average trade debtors held

7. Net Cash Cycle Days Gross cash cycle less average trade creditors held


18/18


STANDARD RATING SCALE & DEFINITIONS

LONG TERM RATINGS SHORT TERM RATINGS

AAA: Highest credit quality. AAA ratings denote the lowest

expectation of credit risk. They are assigned only in case of

exceptionally strong capacity for timely payment of financial

commitments. This capacity is highly unlikely to be adversely

affected by foreseeable events.

AA: Very high credit quality. AA ratings denote a very low

expectation of credit risk. They indicate very strong capacity for

timely payment of financial commitments. This capacity is not

significantly vulnerable to foreseeable events.

A: High credit quality. A ratings denote a low expectation ofcredit risk. The capacity for timely payment of financial

commitments is considered strong. This capacity may,

nevertheless, be more vulnerable to changes in circumstances or

in economic conditions than is the case for higher ratings.

BBB: Good credit quality. BBB ratings indicate that there is

currently a low expectation of credit risk. The capacity for timely

payment of financial commitments is considered adequate, but

adverse changes in circumstances and in economic conditions are

more likely to impair this capacity. This is the lowest investment-

grade category.

BB: Speculative. BB ratings indicate that there is a possibilityof credit risk developing, particularly as a result of adverse

economic change over time; however, business or financial

alternatives may be available to allow financial commitments to

be met. Securities rated in this category are not investment grade.

B: Highly speculative. B ratings indicate that significant

credit risk is present, but a limited margin of safety remains.

Financial commitments are currently being met; however,

capacity for continued payment is contingent upon a sustained,

favourable business and economic environment.

CCC, CC, C: High default risk. Default is a real possibility.

Capacity for meeting financial commitments is solely reliant uponsustained, favourable business or economic developments. A

CC rating indicates that default of some kind appears probable.

C ratings signal imminent default.

A1+: Obligations supported by the

highest capacity for timely repayment.

A1:. Obligations supported by a strong

capacity for timely repayment.

A2: Obligations supported by a

satisfactory capacity for timely

repayment, although such capacity may

be susceptible to adverse changes inbusiness, economic, or financial

conditions.

A3: Obligations supported by an

adequate capacity for timely repayment.

Such capacity is more susceptible to

adverse changes in business, economic,

or financial conditions than for

obligations in higher categories.

B: Obligations for which the capacityfor timely repayment is susceptible to

adverse changes in business, economic,

or financial conditions.

C: Obligations for which there is an

inadequate capacity to ensure timely

repayment.

D: Obligations which have a high risk

of default or which are currently in

default.

Notes: 1. PACRA's ratings are an assessment of the credit standing of entities in Pakistan. They do not take into account the potentialtransfer / convertibility risk that may exist for foreign currency creditors.

2. A plus (+) or minus (-) may be appended to a rating to denote relative status within major rating categories. Such suffixes arenot added to the AAA long-term rating category, to categories CCC and below, or to short-term ratings.

3. PACRA's rating is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on thesecuritys market price or suitability for a particular investor.

PACRA Rating Report Engro Corp August 2010

Documents

Transcript of PACRA Rating Report Engro Corp August 2010