The Pakistan Credit Rating Agency Limited

RATING REPORT

ENGRO CORPORATION LIMITED (FORMERLY ENGRO CHEMICAL PAKISTAN LIMITED)

AUGUST 2010

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ENGRO CORPORATION LIMITED

RATING REPORT CONTENTS

Summary Report Detailed Report:

PAGE
1 2 2 3 3 5 6 6 9

Ratings Profile Ownership Governance Management System and Controls Performance Capital & Funding

ANNEXURES
Financials Glossary Standard Rating Scale I II III

August 2010

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RATINGS (AUGUST 2010) ENGRO CORPORATION LIMITED [ECL]

Entity Long Term Short Term Secured TFC I PKR4,000mln NEW AA A1+ PREVIOUS* AA A1+

RATING RATIONALE AND KEY RATING DRIVERS The ratings reflect ECLs articulated corporate center mandate aimed at creating value in excess of the
sum of its parts. The salient features of this mandate include development of a central pool of executive management capable of managing independent businesses, designation of a group CEO, strengthening of the governance framework with independent directors, and a comprehensive framework for monitoring the performance of subsidiaries. The ratings incorporate ECLs diversified investment portfolio including a stable, indeed growing, fertilizer presence, wherein business risk is low. Although some of the companys subsidiaries are currently in the growth phase, a sustained dividend stream from established enterprises supplements ECLs financial profile. These ratings are dependent upon the companys ability to implement a robust mechanism for providing strategic guidance to all group companies while maintaining an effective control environment. Moreover, timely completion of the urea expansion project without significant delays, coupled with growth and resultant profitability in other businesses, remains important. Meanwhile, effective management of the groups financial risk, especially during the period prior to the planned gradual deleveraging, remains critical for the companys ratings.

AA

* Assigned to Engro Chemical Pakistan Limited

AA+ AA AAA+ May May June June May 2006 2007 2008 2009 2010

ASSESSMENT Incorporated in 1965, Engro Chemicals Pakistan Limited (ECPL) was renamed as Engro Corporation
Limited (ECL) on January 01, 2010, following a demerger of the fertilizer business to Engro Fertilizer Limited (EFL). All assets/ liabilities of the fertilizer business have been transferred to Engro Fertilizer with Engro Corporation carrying equity investments in subsidiaries and associates at cost. Engro Corporation is now the holding company for all strategic investments including fertilizer operations. Engro Corporation has irrevocably and unconditionally guaranteed to each secured party, as defined under the pertinent finance documents, punctual performance by Engro Fertilizer of all its obligations, and undertakes that whenever Engro Fertilizer does not pay any amount when due, it must immediately, on demand by the inter-creditor agent (National Bank of Pakistan), pay that amount as if it were the principal obligor in respect of that amount. As a holding enterprise, ECL aims to benefit from a more focused approach towards strategic management and enhanced governance. The company generates a monthly MIS Dashboard providing a structured breakdown of information on predetermined key indicators for each group entity. The company has also formulated an Executive Committee (ExCom), comprising Group CEO, Group CFO, Head Human Resource and all designated CEOs of subsidiaries/ associates. ExComs primary 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) fertilizers (Engro Fertilizer Limited 100%), (ii) food & allied (Engro Foods Limited 100%, (iii) power production (Engro Energy (Pvt.) Limited 95% and Engro Powergen (Pvt.) Limited 100%), (iv) commodity export/ import (Engro Eximp (Pvt.) Limited 100%), (v) automation & controls engineering (Avanceon Limited 63%) (vi) PVC resins (Engro Polymer & Chemicals Limited 56%) and (vii) Storage (Engro Vopak Terminal Limited 50%). Engro Fertilizer Limited is currently the second largest producer of urea in the country (~22% as per designed capacity). EFL, at present, is undergoing expansion (Enven 1.3), with added capacity of 1,300,000tons expected to come online, with some delay, in 4Q10. Engro Foods Limited, engaged in the manufacture of dairy products, is currently in a growth phase and reported a loss of PKR 179mln for 1H10. Engro Energy Limited, a 217MW combined cycle power plant, initiated commercial production in March 2010, as per the revised plan, posted a profit of PKR 379mln for 1H10. Engro Eximp (Pvt.) Limited, engaged in commodities import/export, reported a profit of PKR 973mln in 1H10. Avanceon Limited, acquired in 2007, provides process control solutions to industrial units and posted a loss of PKR 94mln in 1H10. Engro Polymer & Chemicals Limited, the only listed investment, has recently recommissioned its VCM production (backward integration) after a lag due to fire incident in December. The plant is expected to reach its optimum capacity by end-3Q10. The company reported a loss of PKR 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) Energy, while diversifying into other lucrative business opportunities. The role of ECL will be limited in terms of operational decision making but more on the lines of oversight and providing strategic direction. In terms of profitability, the companys income stream would stem from dividends received from its investments and, therefore, expected to be highly correlated to the performance of group entities and their ability to generate positive cash flows. Total subsidiary income in 2009 amounted to PKR 1,885mln (2008: 2,605mln) emanating from Engro Eximp (Pvt.) Limited (PKR 1,435mln) and Engro Vopak Terminal Limited (PKR 450mln). Going forward, Engro Energy is expected to contribute towards ECLs dividend income, followed by Engro Fertilizer in 2011. Engro Polymer would follow suit once its VCM plant is completely functional. With the issue of TFCs of PKR 4,000mln, ECLs standalone capital structure would experience leveraging. This adds to financial risk profile of the group as its consolidated debt (including short term debt)has crossed PKR 100bln mark by end-June10 with very high level of gearing. Nevertheless, mainly with the commissioning of Enven 1.3, the debt is expected to gradually decrease over the medium term.

FINANCIAL DATA
PKR (mln)
1H10* Total Assets Equity Long Term Borrowings Current Borrowings Net Turnover EBITDA ROE % EBITDA Interest Cover (X) Total Debt/ (Total Debt + Equity) 152,699 31,942 89,244 14,329 33,724 6,898 10.0 4.1 76.4 Dec-09* Dec-08* 132,105 29,344 84,142 3,678 58,152 9,018 14.9 4.1 75.0 80,802 23,548 40,768 4,953 40,937 8,072 17.9 4.6 66.0

* Consolidated figures for Engro Group ANALYSTS

Arsalan Ahmed +92 42 35869504 a.ahmed@pacra.com Jhangeer Hanif +92 42 35869504 jhangeer@pacra.com

TFCS ISSUE
ECL is in the process of issuing TFCs of PKR 4,000mln (including a green shoe option of PKR 2,000mln). The instrument will have a tenor of 3 years, carrying fixed profit rate of 14.5% p.a., paid semi annually. The principal payment will be in the 3rd year or early through put option. In case put option is exercised the investor will have to pay a service charge of 2% on the principal. The TFC is secured by way of first ranking floating charge over all the present and future movable properties (including investments) of Engro Corporation Limited but excluding present and future trademarks and copyrights of ECL and excluding its shares in Engro Energy Limited and Engro Polymer & Chemicals Limited.

PROFILE Engro Corporation Limited (formerly Engro Chemicals Pakistan Limited) is listed on all three stock
exchanges of the country. Dawood Group holds a majority stake (~48%) in ECL. ECL has a thirteen member board. The chairman of the board is Mr. Hussain Dawood, a well known professional veteran. The CEO, Mr. Asad Umar, an MBA with significant professional experience, has been associated with the company for long. Apart from the CEO, there is equal representation on the board: four members from the Dawood Group, four from the companys management and four independent directors.

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 any error 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 buy or to sell.

Tel: 92 (42) 35869504

Fax: 92 (42) 35830425

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1. RATINGS Very high credit quality

ENTITY Long Term Short Term TFCs PKR 4,000mln

NEW PREVIOUS* AA A1+ AA AA A1+ -

* Assigned to Engro Chemical Pakistan Limited.

AA+ AA AAA+ June 2003 June 2004 April 2005 May 2006 May 2007 June 2008 June 2009 May 2010

2. PROFILE ECPL renamed as Engro Corporation Limted (ECL) A diversified conglomerate Significant fertilizer presence

2.1 Incorporated in Stock Price - Volume chart 16,000 320 1965, Engro Chemical 14,000 Pakistan Limited was 12,000 240 renamed as Engro 10,000 Corporation Limited 8,000 160 (ECL) on January 01, 6,000 2010, following a 4,000 80 demerger of the fertilizer 2,000 business to Engro Fertilizer Limted (EFL). ECL is listed on all the Volume (L.H.S.) Closing price (R.H.S.) stock exchanges of the KSE - 100 Linear (Closing price (R.H.S.)) country. The share price movement has been largely consistent with the market trend since the reopening of trade in December 2008. The chart demonstrates ECLs strong capacity to raise sizable capital in times of any contingency, as evidenced in the companys history as well. ECLs head office is located in Karachi.
Volume (Thousands)

2.2 ECL is a holding company mainly responsible for overseeing and managing the performance of its subsidiaries and associates, covering business interests in fertilizers, food and commodities, power, engineering, chemicals and storage. In order to facilitate the transition towards the holding company structure, the company sought structural 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 approach towards strategic management and enhanced governance. The chart below displays ECLs subsidiaries and joint venture/ associated companies along with the companys ownership and investment (at cost) in each:
Engro Corporation Limited as at Jun10
Engro Vopak Terminal Ltd. (Joint Venture) 50% (PKR 450 mln)

Engro Foods Ltd. 100% (PKR 6,216mln) 70%

Engro EXIMP Ltd. 100% (PKR 480mln) 30%

Engro Fertilizers Ltd. 100% (PKR 10,739mln)

Engro Management Services Ltd. 100% (PKR 2.5mln)

Engro Powergen Ltd. 100% (PKR 387mln)

Engro Polymer & Chemicals Ltd. 56% (PKR 3,651mln)

Avanceon Ltd. 63% (PKR 382mln)

Engro Energy Ltd. 95% (PKR 3,040mln)

Engro Foods Supply Chain (Pvt.) Ltd. 100% (PKR 523mln)

ENGRO CORPORATION LIMITED (ECL) AUGUST 2010

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Subsidaries

Wholly owned subsidaries

Price (PKR)

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2.3 ECL and its subsidiaries have won numerous awards from the Karachi Stock Exchange (KSE) and the Management Association of Pakistan. In addition, the company attained 3-Star rating in Environment Performance benchmarking carried out by British Safety Council as well as Investor Relation Award by the CFA association of Pakistan. In addition, Engro is ranked as the top Pakistani company for corporate social responsibility in the first Asian Sustainability Rating 2009. 3. OWNERSHIP Majority owned by Dawood Group Dawood Group a diversified business group 3.1 Dawood Group (DG) holds a majority 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.
Shareholding Pattern as at Dec09

28%

38% 48%

18%

3.2 Dawood group is primarily engaged in the business of fertilizer, 3% 3% textiles, technology business and Dawood Hercules Chemicals Ltd Associated Companies insurance. The journey of the group Directors & Related Parties Public Sector Corporations started in 1949 with the foundation Financial Institutions Others of first group company Lawrencepur Woollen & Textile Mills. The group made inroads into the fertilizer sector by setting up Dawood Hercules Chemicals Limited (DAWH) in 1968. DAWH, listed on Lahore and Karachi Stock Exchange, has a nameplate capacity of 445,500MT p.a. with approximately 115% capacity utilization at end Dec09. The company manages one of the highly recognized brands among fertilizer community Bubber Sher. With the passage of time, some other group concerns Dawood Cotton Mills Limited, Burewala Textile Mills Limited, Central Insurance Company, Dawood Corporation (Pvt.) Limited, and Dilon Limited were also founded. In 2004, all the textile companies of the Dawood group were merged in a single entity - Dawood Lawrencepur Limited. During the same year, the group also acquired majority stake in Inbox Business Technologies (Pvt.) Limited, an information technology firm. The group runs a small brokerage house by the name of Elixir Securities Pakistan (Pvt.) Limited. 4. GOVERNANCE Experienced BoD members with diverse professional background Four independent directors Strong committees structure 4.1 ECLs board of directors comprises thirteen members including the CEO. Apart from the CEO, there is equal representation on the board: four members from the Dawood Group, four from the companys management and four independent directors. The pertinent details of all board members are given as follows:
No.

10%

Name

Key Experience Chairman Engro Corporation Limited Chairman Dawood Hercules Chemicals Limited Chairman Pakistan Poverty Alleviation Fund CEO Dawood Corporation Limited Chairman Central Insurance Company Limited Director Sui Northern Gas Pipelines Limited CEO Dawood Hercules Chemicals Limited Chairman Dawood Lawrencepur Limited Director National Mines (Pvt.) Limited Director Sach International (Pvt.) Limited

Representative DG

Committees Chairman - Board Compensation Committee

Mr. Hussain Dawood

1 [MBA Northwestern University, USA]

Mr. Samad Dawood

2 [BSc University College London, UK]

DG

Audit Committee

Mr. Shahzada Dawood

3 [LLB & MA Global Textile Marketing University of Philadelphia, USA]

DG

Board Compensation Committee

ENGRO CORPORATION LIMITED (ECL) AUGUST 2010

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Director Strategy and Business - Dawood Hercules
4

Mr. Isar Ahmed

[FCA & MA Economics]

Chemicals Limited Ex Head of Business Unit Reckitt Benckiser Ex MD Haleeb Foods Limited CEO Engro Corporation Limited

DG

Audit Committee

Mr. Asad Umar

5 [MBA Institute of Business Administration]

CEO Engro Fertilizers Limited Director State Bank of Pakistan Director Pakistan Institute of Corporate Governance Group CFO Ex CFO Trans Gulf Finance Corporation Ex CEO Sigma Leasing (Pvt.) Limited CEO Engro Energy Limited CEO Engro Powergen Limited CEO Engro Polymer & Chemicals Limited Director Engro Powergen Limited Director Engro Energy Limited Designated CEO Engro Fertilizer Limited Director Engro Polymer & Chemicals Limited Director Engro Energy Limited Private Equity Consultant Actis Assets Limited Director Pakistan Industrial Development Corporation Ex CEO & chairman Oil & Gas Development Company Limited Ex MD Caltex Oil Pakistan Director National Clearing Company of Pakistan

Employee

Mr. Ruhail Mohammad

[CFA & MBA Institute of Business Administration]

Employee

Mr. Khalid Mansoor

[Chemical Engineer]

Employee

Mr. Asif Qadir

8 [Chemical Engineer Columbia, USA]

Employee

Mr. Khalid Subhani

9 [Chemical Engineer & MBA University of Berkley, USA]

Employee

Chairman Audit Committee Board Compensation Committee

Mr. Shabbir Hashmi

10 [MBA JF Kennedy University, USA]

Independent

Mr. Arshad Nasar

11 [MA Economics & Political Science]

Independent

Board Compensation Committee

Mr. Ali Ansari

12 [BA Economics Richmond College, UK]

CEO Dewan Drilling Limited Ex CEO AKD Securities Ex COO Credit Lyonnais Securities

Independent

Audit Committee

Mr. Saad Raja

13 [MA Management London Business School, UK]

Asset Management Industrial Bank of Japan

Independent

4.2 The board has two committees namely Board Compensation Committee and Board Audit Committee. 4.2.1 Board Compensation Committee, comprising four members, is headed by Mr. Hussain Dawood. The committee is responsible for decisions relating to performance evaluation, development and succession of CEOs and top Executives. Also, the committee ensures human resource policies are aligned to deliver robust talent management process across various Engro Companies while establishing group wide standards /policies. 4.2.2 Board Audit Committee, comprising four members, is headed by Mr Shabbir Hashmi. The committee assists the board in fulfilling its oversight responsibilities, primarily in reviewing and reporting financial and non-financial information to shareholders, systems of internal control and risk management and the audit process. It has access to all information from management and can consult directly with the external auditors or their advisors as considered appropriate. The CEO and CFO attend the meetings by invitation. The committee also privately meets with the external auditors at least once a year. After each meeting, the chairman of the committee reports to the Board.

ENGRO CORPORATION LIMITED (ECL) AUGUST 2010

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5. MANAGEMENT Highly professional management Principal operation committees

5.1 The management of ECL lies in 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, an MBA from the Institute of Business Administration, Karachi, has prior experience of over 20 years with Engro Group. He has also previously served on the boards of the Oil and 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 of the Pakistan Chemical and Energy Sector Skill Development Company. In addition, Mr. Umar serves on the board of the State Bank of Pakistan as well as the Pakistan Business Council. He was awarded the Marketing Association of Pakistan Corporate Award of Excellence in March 2010. Mr. Ruhail Muhammad, CFA and a MBA in Finance (gold medalist) from the Institute of Business Administration, is currently the group CFO as well as a member of the boards for all Engro subsidiaries. Ruhail joined Engro Polymer and Chemicals Limited in 1998, before which he worked for Sigma Leasing Corporation Limited and TransGulf Finance Corporation. Mr. Tahir Jawaid is responsible for overseeing all human resource activities across ECL as well as its subsidiaries. He holds a Master of Science in Industrial Engineering from the University of Houston, USA and has previously worked in the US in various capacities for system and design engineering companies. Mr. Naveed A. Hashmi, GM Corporate Audit, joined Engro in 1985 after having worked in the Pakistan Tobacco Company Limited. An MBA from the Institute of Business Administration, Mr. Hashmi currently manages the internal audit function of the 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 of Engro group companies. Mr. Alavi has prior experience with Surridge & Beecheno and 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 for its highly professional and long-term outlook. The top management is highly qualified and well experienced in their respective fields. ECL has an annual appraisal process in place, which assesses employee performance against agreed criteria and identifies training requirements, if any, to enhance overall standard of performance. At executive level, leadership qualities will be assessed through the Executive Committee (ExCom) evaluations. ECL maintains its compensation packages in line with the minimum 75th percentile in the corporate sector of Pakistan as ascertained by the annual Watson Wyatt Compensation Survey. 5.4 The company has three principal operation committees, a) Executive Committee (ExCom), b) Corporate Health, Safety and Environment Committee and c) Compensation, Organization and Employee Development Committee all headed by the Chief Executive Officer. The following table gives an overview of the functions of these committees:

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Committee Members Asad Umar CEO ECL Ruhail Mohammad CFO ECL Tahir Jawaid - VP HR All designated CEO's of subsidiaries Ali Akbar - Secretary Functions 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. Responsible for providing leadership and strategic guidance on Health, Safety and Environment improvement initiatives while ensuring compliance with regulatory standards and international benchmarks. Responsible for the review of Compensation, Organization and Employee Development matters of all people excluding employee directors and senior executives. Frequency

Executive Committee (ExCom)

Quarterly

Corporate Health, Safety and Environment (HSE) Committee

Asad Umar CEO ECL All designated CEOs of subsidiaries

Quarterly

Compensation, Organization and Employee Development (COED) committee

Asad Umar CEO ECL All designated CEOs of subsidiaries

Quarterly

6. SYSTEMS & CONTROLS Strong control environment SAP

6.1 ECL maintains an effective control environment with clear reporting lines and well defined policies and procedures. The review and accountability function runs through the entire organizational structure. The role of the company, as a holding entity, is to provide for and sustain the activities of its investments as a whole. Therefore, to maintain proper monitoring and thorough oversight of its strategic investments, ECL generates a monthly MIS for its board members Dashboard that provides a structured breakdown of information on predetermined key indicators for each group entity. From a holding company perspective, this enables the management at ECL to review/ monitor the performance of each individual subsidiary independently, in turn, facilitating decision making at business as well as corporate level. Further, the company is planning to launch an Enterprise wide Risk Management (ERM) initiative following the completion of the 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, the system covers financial, accounting and human resource applications of both ECL and EFL. ECL is working towards enhancing the effectiveness of this system in order to fully realize the benefits emanating from complete implementation. The technical services for the implementation of the SAP ERP are provided by IBM Global Services whereas the software itself has been developed by SAP AG (Malaysia Regional Office). IBM Global Services is responsible for ensuring the smooth transition from the existing system; the full implementation of which is expected to be completed by the end of 2010. Going 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 and operational procedures to ensure adequacy of internal controls, reporting directly to the audit committee for all critical issues. 7.1 As a holding company, the assets of ECL comprises equity stakes held at cost price in its subsidiaries/ associates with a total investment book of PKR 23,730mln of which PKR 10,740mln Dividend History 3,000 constitutes ECLs holding in EFL. The main income 2,500 component for ECL is dividends received from its 2,000 investments. A graph 1,500 illustrating historic dividend patterns is given. The total 1,000 investment income reported for 2009 amounted to PKR 500 1,885mln (2008: PKR 0 2,605mln) emanating from FY07 FY08 FY09 1H10 Engro Eximp (Pvt.) Limited Engro Vopa k Termina l Ltd. Engro Polymer & Chemica ls Ltd. (2009: PKR 1,435mln) and Engro Eximp (Pvt.) Ltd. Engro Vopak Terminal Limited (2009: PKR 450mln). Dividend for 1H10 is only from Engro Vopak with other investments yielding dividends towards the end of 2010. Meanwhile, a group-wide picture
PKR in mln

7. PERFORMANCE Significant holding in robust fertilizer sector Continued focus on three core sectors

ENGRO CORPORATION LIMITED (ECL) AUGUST 2010

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of each entitys respective revenue Revenues (PKR mln) and profitability for the six months 1,072 757 ending June10 is shown. 7.2 Going forward, the EFL company envisages continued focus Engro Foods 5,000 9,421 on three core sectors: 1) Fertilizer, EPCL 2) Food and 3) Energy, while 2,007 EPL/EEL diversifying into other lucrative Engro Eximp business opportunities such as 6,597 Engro Vopak chemicals, storage services, 9,833 Avanceon 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 PAT (PKR mln) direction. In terms of profitability, (94) the companys income stream is expected to be highly correlated to 518 EFL the performance of group entities Engro Foods and their ability to generate 2,012 EPCL 973 positive cash flows. Although EPL/EEL some ventures of the company are Engro Eximp likely to remain non-earning in the Engro Vopak 379 initial phase, they are expected to (449) Avanceon develop a stable revenue stream (179) over the medium term; Engro Energy is expected to contribute towards ECLs dividend income, followed by Engro Fertilizer in 2011. Engro Polymer would 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, is 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 Engro Urea, MAP under the brand name of Zorawar, NPK under Zarkhez and DAP as Engro DAP. EFLs urea plant, with a capacity of 975,000tons per annum, is located at Dharki, whereas NPK plant is situated at Port Qasim. EFLs urea expansion project (Enven 1.3), originally expected to commence commercial production by July 2010, has been rescheduled to 4Q10. This is not expected to have a major impact on the budgeted project costs, which stand at an estimated USD 1,050mln including USD 30mln impact of rupee devaluation. However, any delay beyond Sep10 would result in shortfall of projected cash flows depending upon the related extent. The management expects that the project would enter commissioning phase by end-Sep10 and after satisfactory performance is achieved, COD would be announced. At Jun10, EFL is projected to incur PKR 4,000-6,000mln more to complete Enven1.3. This will be met through a combination of equity (profit retention) and debt. EFL has available unutilized line of PKR 1,725mln from syndicated facility, and cash & cash equivalent of around PKR 2,092mln. In addition, EFL has financed its working capital at end-June10 through an amount which was taken out of loan for the expansion project this may be freed by utilizing committed short term credit facility of approximately PKR 3,500mln. Meanwhile EFL, if need arises, may receive a fresh injection from ECL after the parent completes issuance of its first TFC (PKR 4,000mln). The enhanced capacity (2,275,000 tons p.a.) is expected to increase EFLs market share to ~35% (currently 23%). Meanwhile, EFL would continue compensating
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fall in production due to gas curtailment (currently: 7%) through price hike inline with other industry players. 7.2.2 Engro Eximp (Pvt.) Limited (EEPL), a wholly owned subsidiary of ECL established in 2002, is engaged in commodities export/import business. EEPL, for marketing imported phosphatic fertilizers, would be using Engro Fertilizer Limited. This means that EEPL would be carrying all inventories on its own books. The company 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 2005, focuses on the dairy business. The company initially set up a processing plant in Sukkur with milk storage capacity of 300,000 liters/day and UHT (ultra heat treatment) milk processing capacity of 200,000 liters/day. In 2007, another plant was installed in Sahiwal with a cost of PKR 3,000mln, having a processing capacity of 250,000 liters/day along with capability of producing tea whitener. With the added production from this new plant, the market share of the company in the UHT milk segment increased to 38%, making Engro Foods the market leader in this respect (Nestle: 37%). Engro Foods has also installed an advanced ice cream plant in Sahiwal provided by Tetra Pak Hoyer with a production capacity of 8mln liters/annum; marketing its products under the brand name Omore. The company is currently in the growth phase and reported a loss of PKR 434mln in 2009. Subsequently, the companys performance has improved with a total net loss of PKR 180mln as of end June10 with a profit of PKR 149mln posted by the dairy segment for the same period. Engro Foods entered the juice segment in May10 with the brand name of Olfrute initially in four flavors. The company has also made inroads into the rice export market exclusively focused upon basmati rice. The project, having a capacity of 20,000mt per annum, is anticipated to commence commercial procurement and production by November 2010, under the purview of Engro Food Supply Chain Management (Pvt.) Limited, formed specifically for the purpose. 7.2.4 POWER: Engro Powergen (Private) Limited (EPL), a wholly owned subsidiary of ECL, has been set up with an aim to act as a negotiation window for all initiatives of the parent in the energy sector. The first outcome of ECLs effort is Engro Energy Limited (EEL), which was formed in 2006 to tap power generation opportunities. EEL has a combined cycle power project with net output of 217 MW, based on low BTU and high sulphur permeating gas from Qadipur gas field in Ghotki district. The project has a total 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 joint venture with the Sindh Government, forming the Sindh Engro Coal Mining Company (SECMC), for the mining, exploration and development of Thar Coal fields. The total project cost (including a power plant of 1200MW) will be ~USD 3,000mln, of which exploration cost is estimated to be around PKR 1,000mln. The exploration cost is expected to be shared 60% by ECL and 40% by the Sindh government. A pre-feasibility and environment impact assessment is currently underway and is expected to be completed during 2H2010 (cost: USD 3-5mln). During Mar10, SECMC signed two MoUs one with Sindh Coal Authority for obtaining an exploration license and another with PEPCO for supplying coal to PEPCOs 1,200MW thermal power plant, subject to availability of excess coal supply. 7.2.5 ENGINEERING: Avanceon (formerly Engro Innovative Automation & Engineering (Pvt.) Limited) provides process control solutions to leading industrial units in the country. In early 2007, EIAL acquired a 70% stake in Advanced Automation LP (AALP), a company providing industrial solutions in automation controls and allied services in the United States. To finance this transaction, ECL injected PKR 300mln. The company reported a profit of PKR 24mln in 2009. Avanceon posted a loss of PKR 94mln at end 1H10 though US operations were in profits (PKR 47mln).

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HOLDING COMPANY
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7.2.6 CHEMICALS: Engro Polymer and Chemicals Limited (EPCL) is mainly involved in manufacturing, marketing and selling of PVC. EPCL carried out a USD 240mln expansion and back integration project which came online in late 2009. The project included setting up a new PVC plant, enhancing the manufacturing capacity to 150,000 tons per annum (current 100,000 tons per annum) and a backward integrated facility (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 the scrubber section of the companys VCM plant, due to which it was shut down to limit the losses. The VCM plant is currently in the commissioning phase running at 70-80% capacity. After installation of scrubber expected to be done in Sep10 the plant would achieve full production capacity 450tons/day (nameplate 600tons/day). EPCL, to finance the cost overrun of ~PKR 2,500mln, made a right issue during April10 amounting PKR 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 joint venture with Royal Vopak of the Netherlands. The facility comprises an integrated liquid chemical jetty cum storage. The company has also set up LPG storage facility and has exclusive rights to handle bulk liquid chemicals at Port Qasim. The company also added Ethylene storage capacity in 1Q2009. EVTL posted a profit of PKR 917mln in 2009 (1H10: 518mln). 8. CAPITAL & FUNDING Assets/ liabilities transferred to EFL Corporate guarantee to EFL High quantum of consolidated debt TFCs in the offing 8.1 Following the demerger as on 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, unappropriated profits of ECPL amounting 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.
Capital Structure
150,000 125,000 100,000

PKR (mln)

75,000 50,000 25,000 Pre de-merger (consolidated) Dec 31,2009

Equity

Planned

Post de-merger (consolidated) June30, 2010

Post de-merger (stand alone)

Borrowings

8.2 With the issue of TFCs of PKR 4,000mln, ECLs standalone capital structure would experience leveraging. The group, with a consolidated debt (including short term borrowings) of ~PKR 103bln and a debt-to-equity ratio of 76:24 at Jun 10 excluding the comfort to be derived from the ultimate parents (Dawood Hercules) low leveraged capital structure remains highly leveraged. Nevertheless, with the commissioning of Enven 1.3, the debt is expected to gradually decrease over the medium term. In the meantime, the groups ability to raise requisite funding through capital and/or debt markets largely mitigates the associated risks. 8.3 Engro Corporation has irrevocably and unconditionally guaranteed to each secured party, as defined under the pertinent finance documents, punctual performance by Engro Fertilizer of all its obligations and undertakes that whenever Engro Fertilizer does not pay any amount when due, it must immediately, on demand by the inter-creditor agent (National Bank Pakistan), pay that amount as if it were the principal obligor in respect of that amount. 8.4 TFCs Issue: ECL is in the process of issuing TFCs of PKR 4,000mln (including a green shoe option of PKR 2,000mln). TFCs would be primarily marketed among retail
ENGRO CORPORATION LIMITED (ECL) AUGUST 2010 Page 9 of 10
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HOLDING COMPANY
The Pakistan Credit Rating Agency Limited

investors and thereafter listed on the stock exchange. The proceeds of the issue are expected to be utilized for ECLs own working capital requirement with a major portion being deployed in Engro Fertilizers. The salient features of the instruments are listed in the following table.
Proposed TFCs Issue size Tenor Profit Rate Principal Repayment Security PKR 4,000mln (including green shoe option of PKR 2,000mln) 3 years 14.5% p.a. 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. The TFC is secured by way of first ranking floating charge over over all the present and future movable 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. IGI Investment Bank Limited

Trustee

Analysts
Disclaimer:

Arsalan Ahmed +92 42 3586 9504 a.ahmed@pacra.com

Jhangeer Hanif +92 42 3586 9504 jhangeer@pacra.com

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 any error 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 buy or to sell.

ENGRO CORPORATION LIMITED (ECL) AUGUST 2010

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The Pakistan Credit Rating Agency Limited Engro Corporation Limited (formerly Engro Chemical Pakistan Limited)
BALANCE SHEET For the year ending
(PKR in million)

30-Jun-10 Unaudited

1-Jan-10 Split

31-Dec-09

31-Dec-08

A NON-CURRENT ASSETS 1 Operating Fixed Assets - Owned and Leasehold 2 Intangible Assets 3 Other Non-Current Assets Non-Current Assets B INVESTMENTS 1 Associates / Subsidiaries a. Equity b. Debt Securities / Loans 1 Investment Property 2 Other Investments a. Fixed Income/Money Market Funds b. Term Deposit Investments C CURRENT ASSETS 1 Inventories a. Stores and Spares b. Stock-in-trade- raw material finished goods 2 Trade Receivables 3 Other Current Assets 4 Cash and Bank Balances Current Assets D TOTAL ASSETS (A+B+C) E CURRENT LIABILITIES 1 Borrowings a. Current portion of long term debt b. Short term debt 2 Trade Payables 3 Other Current Liabilities 5 Dividend Payable Current Liabilities F NON-CURRENT LIABILITIES 1 Borrowings 2 Due to Associates 3 Other Non-Current Liabilities Non-Current Liabilities G NET ASSETS (D-E-F) H SHAREHOLDERS' EQUITY 1 Ordinary Share Capital 2 Preference Share Capital 3 Share Premium Account 4 Revaluation Reserve a. Fixed Assets b. Investments 5 Revenue Reserves 6 Unappropriated Profit Shareholders' Equity

86.03 86.03

54.64 2.79 57.43

69,517.51 122.70 331.69 69,971.91

33,395.76 122.86 354.89 33,873.51

25,352.90 241.86 25,594.77 851.86 851.86 26,446.63

23,727.80 23,727.80 241.91 241.91 23,969.71

12,988.66 12,988.66 450.86 450.86 13,439.51

11,091.86 11,091.86 67.81 67.81 11,159.67

65.67 754.14 819.81 27,352.47

225.08 3,501.22 3,726.29 27,753.43

961.12 303.99 118.62 1,383.72 2,514.43 2,444.52 3,955.34 10,298.01 93,709.44

957.24 1,142.83 3,529.04 5,629.11 261.51 7,668.66 1,687.04 15,246.32 60,279.50

161.44 113.82 275.26

0.94 0.94 151.53 102.10 254.56

830.70 195.75 1,026.45 593.37 4,673.55 102.10 6,395.47

94.93 1,711.28 1,806.21 840.72 3,034.11 309.29 5,990.32

0.66 0.66 27,076.55

0.90 0.90 27,497.97

58,565.35 1,860.38 60,425.73 26,888.24

27,756.71 3,448.39 31,205.11 23,084.07

3,277.37 10,550.06 4,506.36 8,742.76 27,076.55

0.00

2,979.43 10,550.06 4,717.50 9,250.98 27,497.97

2,979.43 10,550.06 4,107.78 9,250.97 26,888.24

2,128.16 7,152.72 6,892.06 6,911.12 23,084.07

Foreign exchange forward contract

The Pakistan Credit Rating Agency Limited Engro Corporation Limited (formerly Engro Chemical Pakistan Limited)
PROFIT & LOSS ACCOUNT For the year ending
(PKR in million)

30-Jun-10 Unaudited

31-Dec-09

31-Dec-08

Turnover 1. Urea Manufactured Own 2. DAP Purchased Product Operating Costs Gross Profit Operating Expenses 1 Administrative and General Expenses 2 Selling and Marketing Expenses Operating Profit / (Loss) Income From Associates 1 Dividend 2 Share of Profit/(Loss) Others 1 Profit/(Loss) on Sale of Assets 2 Income from Investments 3 Surplus / (Deficit) on revaluation 4 Royalty Income * 5 Other Income/ Expenses 6 Exchange Gain/(Loss) Profit / (Loss) before Financial Charges Financial Charges 1 Interest Income 2 Interest Expense Profit / (Loss) before Taxation Taxation Net Income / (Loss) Unappropriated Profit/(Loss) Brought Forward Available for Appropriation Appropriations 1 Reserves 2 Dividends a. Stock b. Cash Effect of change in Accounting Policy (+/-) Unappropriated Profit Carried Forward -

B C D

16,136.46 14,035.06 30,171.52 (23,240.18) 6,931.34

15,508.82 7,808.38 23,317.20 (17,120.64) 6,196.56

E F

(80.39) (80.39) (80.39)

(1,945.18) (1,945.18) 4,986.17

(1,657.82) (1,657.82) 4,538.75

180.00 180.00 127.74 93.32 221.06 320.67

1,885.00 1,885.00 23.60 (378.92) (355.32) 6,515.85

2,605.40 2,605.40 69.30 (520.56) 18.04 (433.21) 6,710.93

H I

J K L M N O

147.64 (1.60) 146.04 466.71 (81.09) 385.62 9,250.97 9,636.59

19.67 (1,320.58) (1,300.91) 5,214.94 (1,257.70) 3,957.25 6,911.13 10,868.38

2.59 (1,508.95) (1,506.35) 5,204.58 (964.14) 4,240.43 4,116.63 8,357.06

(297.94) (595.89) (893.83) 8,742.76

(1,617.40) (1,617.40) 9,250.98

(14.26) (1,431.67) (1,431.67) 6,911.13

P Q

The Pakistan Credit Rating Agency Limited Engro Corporation Limited (formerly Engro Chemical Pakistan Limited)
CASH FLOW STATEMENT For the year ending
(PKR in million)

30-Jun-10 Unaudited

31-Dec-09

31-Dec-08

A CASH FLOWS FROM OPERATING ACTIVITIES 1 Profit Before Tax 2 Adjustments for: a. Depreciation/Amortization b. Interest Expense/(Income) c. Others (+/-) 466.71 7.93 (146.04) (138.11) EBITDA 3 Adjustments for other Non-Cash Charges/Items 328.60 (256.52) 72.08 5,214.94 672.43 1,320.58 1,993.01 7,207.95 (1,594.30) 5,613.65 5,204.58 653.73 1,508.95 2,162.68 7,367.26 (2,474.80) 4,892.46

4 Changes in Working Capital a. (Increase)/Decrease in Curent Assets b. Increase/(Decrease) in Curent Liabilities (Excl. Debt)

(7.08) (34.50) (41.58) 30.50 (1.60) (41.56) (10.62) (53.78) (23.28)

2,466.18 695.58 3,161.76 8,775.42 (758.95) (1,226.86) (250.72) (2,236.53) 6,538.89

(1,290.40) (279.61) (1,570.00) 3,322.46 (1,090.52) (574.98) (242.34) (1,907.83) 1,414.62

Cash Generated from Operations 5 Financial Charges Paid 6 Taxation Paid 7 Others (+/-) Net Cash provided by Operating Activities B CASH FLOWS FROM INVESTING ACTIVITIES

1 Capital Expenditure 2 Proceeds from sale of Fixed Assets 4 (Purchase)/Sale of Investments 5 Income from Investments 6 Investment in Subsidiary/Associated Companies 7 Others Net Cash (Used in)/Available From Investing Activities C Cash In/(Out) Flow Pre-Financing D CASH FLOWS FROM FINANCING ACTIVITIES

(42.01) 3.10 416.51 (1,625.10) (1,247.50) (1,270.78)

(36,352.36) 58.45 (1,896.80) 1,973.18 (450.00) (36,667.53) (30,128.64)

(20,214.34) 87.73 (3,327.38) 2,656.88 (910.00) (622.00) (22,329.11) (20,914.48)

* **

1 Proceeds from Issue of Ordinary Shares 2 Dividends Paid 3 Others (+/-)

(624.43) (624.43) (1,895.21) 3,501.22 1,606.00

4,248.60 (1,833.62) 335.27 2,750.25 (27,378.39) (27,808.08) (55,186.47)

3,382.21 (1,306.10) 2,076.12 (18,838.37) (8,969.71) (27,808.08)

NET DEBT (INCREASE)/DECREASE

F OPENING NET (DEBT)/CASH G CLOSING NET (DEBT)/CASH H NET (DEBT)/CASH 1 Long-Term Loans/Finances 2 Short-term Loans/Finances 3 Cash & Cash Equivalents
* **

1,606.00 1,606.00

(58,565.35) (1,026.45) (59,591.81) 4,405.34 (55,186.47)

(27,756.71) (1,806.21) (29,562.92) 1,754.85 (27,808.07)

Advance to Engro Eximp Private Limited Payment to Engro Foods Limited for acquisition of tax losses

The Pakistan Credit Rating Agency Limited Engro Corporation Limited (formerly Engro Chemical Pakistan Limited)
RATIO ANALYSIS 30-Jun-10 Unaudited A EARNINGS/PROFITABILITY 1a Own Manufactured Products Growth 1b Purchased Products Growth 2a Gross Margin- Own Manufactured 2b Gross Margin- Purchased Products 3 Operating Margin 4 Pre-Tax Profit Margin 5 Net Profit Margin 6 Effective Tax Rate 7 Average Interest Rate 8 Pre-Tax Return on Equity 9 Return on Equity (ROE) - Asset Turnover (Times) - Net Profit Margin - Financial Leverage (Times) 10 Return on Assets (ROA) B COVERAGE 1 Short-term Debt Payback (Years) 2 Total Debt Payback (Years) 3 Net Debt Payback (Years) 4 Net Debt / EBITDA 5 EBITDA Net Interest Cover (X) 6 Net Interest Cover (X) C LIQUIDITY 1 Current Ratio (X) 2 Quick Ratio (X) 3 Average Inventory Held (Days) 4 Average Trade Debtors (Days) 5 Gross Cash Cycle (Days) 6 Average Trade Creditors (Days) 7 Net Cash Cycle (Days) D FINANCIAL STRUCTURE 1 Current Debt/Total Debt 2 Total Debt/Equity 3 Net Debt/Equity 4 Equity/Total Assets 5 Total Debt/Adjusted Equity (Net of Rev. Surplus) 6 Total Liabilities/Equity 7 Total Debt/(Total Debt+Equity) 31-Dec-09 31-Dec-08

n.a. n.a. n.a. n.a. n.a. n.a. n.a. 17.38% n.a. 1.72% 1.43% n.a. n.a. 1.01 0.39%

4.05% 79.74% 38.87% 4.69% 21.60% 17.28% 13.12% 24.12% 2.22% 19.39% 15.84% 7.63 13.12% 3.49 5.36%

44.29% -37.20% 37.63% 4.62% 28.78% 22.32% 18.19% 18.52% 5.10% 22.55% 21.84% 0.39 18.19% 2.61 8.59%

n.a. n.a. (52.66) (4.89) (2.25) (2.20)

0.12 6.79 6.29 7.66 5.54 5.01

0.54 8.90 8.37 3.77 4.89 4.46

6.07 6.07 n.a. n.a. n.a. n.a. n.a.

1.68 1.46 4.77 30.42 35.19 9.32 25.87

2.55 1.61 40.86 13.07 53.93 33.19 20.74

n.a. n.a. -5.93% 98.99% -0.92% 1.02% n.a.

1.72% 221.63% 205.24% 28.69% 220.70% 248.51% 68.91%

6.11% 128.07% 120.46% 38.30% 126.98% 161.17% 56.15%

The Pakistan Credit Rating Agency Limited

GLOSSARY OF TERMS USED BY PACRA

(INDUSTRIAL CORPORATES)
DESCRIPTION METHODOLOGY

PROFITABILITY 1. 2. 3. 4. Gross Profit Margin Net Profit Margin Return on equity (ROE) Return on assets (ROA) (%) (%) (%) (%) (Sales less COGS) / Sales Profit After Tax / Sales Profit After Tax / Average Equity. Profit After Tax / Average Assets

COVERAGE 1. 2. 3. 4. EBITDA Total Debt Pay-Back Period Net Debt Pay-Back Period Net Interest Cover PKR mln Years Years (x) Earnings before interest, tax, depreciation and amortization. Total debt / Cash generated from operations Total debt less cash / Cash generated from operations Net profit before interest and taxes / Net Interest Expense + Interest Capitalized Net income after tax but before extraordinary items / Dividends paid and proposed

5.

Ordinary Dividend Cover

(x)

LIQUIDITY 1. 2. Current Ratio Quick Ratio (x) (x) Current assets / current liabilities Trade debtors, other debtors, liquid investments, cash and deposits / current liabilities Average Inventory for the year (excl. stores and spares) / cost of goods sold Average trade debtors for the year / Sales Average trade creditors for the year / Cost of goods sold Average inventory held plus average trade debtors held Gross cash cycle less average trade creditors held

3.

Average Inventory Held

Days

4. 5. 6. 7.

Average Trade Debtors Held Average Trade Creditors Gross Cash Cycle Net Cash Cycle

Days Days Days Days

The Pakistan Credit Rating Agency Limited

STANDARD RATING SCALE & DEFINITIONS

LONG 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 of credit 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 investmentgrade category. BB: Speculative. BB ratings indicate that there is a possibility of 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 upon sustained, favourable business or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default. Notes:

SHORT TERM RATINGS

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 in business, 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 capacity for 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.

1. PACRA's ratings are an assessment of the credit standing of entities in Pakistan. They do not take into account the potential transfer / 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 are not 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 the securitys market price or suitability for a particular investor.