Karachi, July 02, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of International Brands (Private) Limited (IBL) at ‘A/A-2’ (Single A/A-Two). The outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on May 21, 2020. Rating reaffirmation takes into account the satisfactory debt service coverage (including sukuk servicing) which draws comfort from healthy projected growth in dividend inflows from subsidiary companies, namely The Searle Company Limited (Searle) and IBL Operations Private Limited (IBL Ops).

Recent acquisition of OBS Pakistan by Searle and transfer of distribution business to IBL Ops is expected to fuel growth in sales and profitability of aforementioned subsidiaries in the forthcoming years, increasing substantially the flow of dividend streams to IBL in view of its control over these subsidiary companies. Realization of projected dividend stream is an important rating driver, going forward.

IBL’s long-term investment portfolio, representing more than four-fifth of total asset base, comprises investment in six subsidiaries and one associate. Three-fourth of the portfolio is represented by Searle (rated ‘AA-/A-1’ by VIS Credit Rating Company) and IBL Ops which are the two major contributors to revenue in form of dividend income. Searle is one of leading local pharmaceutical firm with a diversified product portfolio and therapeutic area coverage while IBL Ops manages the distribution of pharmaceutical items, healthcare products and consumer goods. In the ongoing year, total investment in Searle increased by ~44%, funded through an equity investment in IBL by a related party.

Sukuk Issue

Sukuk issue of Rs. 2.83b (rated ‘AA’ by VIS Credit Rating Company and reaffirmed on February 18th, 2021) underwent restructuring in FY19 whereby the principal repayment structure was revised from bullet to monthly payments and 28 fixed monthly installments (principal plus quarterly profit) of Rs. 120m each were committed to Sukuk holders. The arrangement functioned smoothly from Aug’19 to Apr’20 and 9 (out of 28) installments were paid. However, with the advent of Covid-19 pandemic and in line with the deferment policy announced by SBP, principal payment for six-month period were deferred by the Sukuk certificate-holders with the continuation of quarterly profit payments.

As planned, principal payments resumed from Nov’20 onwards. Security structure of the Sukuk entails pledge of shares of The Searle Company Limited (Searle). Sukuk rating is also supported by the debt service account wherein funds are made available 10 days prior to each due date. In case of any shortfall, the instrument carries a feature of timely sale or convertibility into shares of Searle which is a fall back arrangement and provides additional comfort to the assigned Sukuk rating.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/