The Credit Rating Agency Limited

RATING REPORT

ENGRO CORPORATION LIMITED (FORMERLY ENGRO CHEMICAL PAKISTAN LIMITED)

AUGUST 2010

HOLDING COMPANY The Pakistan Credit Rating Agency Limited

ENGRO CORPORATION LIMITED

RATING REPORT CONTENTS PAGE

Summary 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

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RATINGS (AUGUST 2010) RATING RATIONALE AND KEY RATING DRIVERS ENGRO CORPORATION LIMITED . The ratings reflect ECL’s articulated corporate center mandate aimed at creating value in excess of the [ECL] 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 Entity NEW PREVIOUS* of the governance framework with independent directors, and a comprehensive framework for monitoring the performance of subsidiaries. The ratings incorporate ECL’s diversified investment Long Term AA AA portfolio including a stable, indeed growing, fertilizer presence, wherein business risk is low. Although some of the company’s subsidiaries are currently in the growth phase, a sustained dividend stream from Short Term A1+ A1+ established enterprises supplements ECL’s financial profile. Secured . These ratings are dependent upon the company’s ability to implement a robust mechanism for providing

TFC I strategic guidance to all group companies while maintaining an effective control environment. PKR4,000mln AA - Moreover, timely completion of the urea expansion project without significant delays, coupled with

growth and resultant profitability in other businesses, remains important. Meanwhile, effective * Assigned to Engro Chemical Pakistan Limited management of the group’s financial risk, especially during the period prior to the planned gradual de-

leveraging, remains critical for the company’s ratings. AA+ ASSESSMENT . Incorporated in 1965, Engro Chemicals Pakistan Limited (ECPL) was renamed as Engro Corporation AA 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 AA- 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. A+ Engro Corporation has irrevocably and unconditionally guaranteed to each secured party, as defined May May June June May under the pertinent finance documents, punctual performance by Engro Fertilizer of all its obligations, 2006 2007 2008 2009 2010 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 FINANCIAL DATA principal obligor in respect of that amount. PKR (mln) . 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 – 1H10* Dec-09* Dec-08* providing a structured breakdown of information on predetermined key indicators for each group entity. Total Assets 152,699 132,105 80,802 Equity 31,942 29,344 23,548 The company has also formulated an Executive Committee (ExCom), comprising Group CEO, Group Long Term CFO, Head Human Resource and all designated CEOs of subsidiaries/ associates. ExCom’s primary 89,244 84,142 40,768 Borrowings function is to assess managerial qualities, while augmenting decision-making and consensus building. Current Borrowings 14,329 3,678 4,953 . ECL’s investment book (cost: PKR 25,352mln) include interests in companies engaged in (i) fertilizers Net Turnover 33,724 58,152 40,937 (Engro Fertilizer Limited – 100%), (ii) food & allied (Engro Foods Limited – 100%, (iii) power EBITDA 6,898 9,018 8,072 production ( (Pvt.) Limited – 95% and Engro Powergen (Pvt.) Limited – 100%), (iv) ROE % 10.0 14.9 17.9 commodity export/ import (Engro Eximp (Pvt.) Limited – 100%), (v) automation & controls EBITDA Interest 4.1 4.1 4.6 Cover (X) engineering (Avanceon Limited – 63%) (vi) PVC resins ( & Chemicals Limited – 56%) Total Debt/ (Total and (vii) Storage (Engro Vopak Terminal Limited – 50%). 76.4 75.0 66.0 Debt + Equity) . 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 * Consolidated figures for Engro Group 1,300,000tons expected to come online, with some delay, in 4Q10. Engro Foods Limited, engaged in the ANALYSTS 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 Arsalan Ahmed in March 2010, as per the revised plan, posted a profit of PKR 379mln for 1H10. Engro Eximp (Pvt.) +92 42 35869504 Limited, engaged in commodities import/export, reported a profit of PKR 973mln in 1H10. Avanceon [email protected] 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 re- Jhangeer Hanif commissioned its VCM production (backward integration) after a lag due to fire incident in December. +92 42 35869504 The plant is expected to reach its optimum capacity by end-3Q10. The company reported a loss of PKR [email protected] 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, TFCS ISSUE while diversifying into other lucrative business opportunities. The role of ECL will be limited in terms

ECL is in the process of issuing TFCs of of operational decision making but more on the lines of oversight and providing strategic direction. In PKR 4,000mln (including a green shoe terms of profitability, the company’s income stream would stem from dividends received from its option of PKR 2,000mln). The instrument investments and, therefore, expected to be highly correlated to the performance of group entities and will have a tenor of 3 years, carrying fixed their ability to generate positive cash flows. Total subsidiary income in 2009 amounted to PKR profit rate of 14.5% p.a., paid semi 1,885mln (2008: 2,605mln) emanating from Engro Eximp (Pvt.) Limited (PKR 1,435mln) and Engro annually. The principal payment will be in Vopak Terminal Limited (PKR 450mln). Going forward, Engro Energy is expected to contribute the 3rd year or early through put option. In towards ECL’s dividend income, followed by Engro Fertilizer in 2011. Engro Polymer would follow case put option is exercised the investor will suit once its VCM plant is completely functional. have to pay a service charge of 2% on the . With the issue of TFCs of PKR 4,000mln, ECL’s standalone capital structure would experience principal. The TFC is secured by way of leveraging. This adds to financial risk profile of the group as its consolidated debt (including short term first ranking floating charge over all the debt)has crossed PKR 100bln mark by end-June10 with very high level of gearing. Nevertheless, mainly present and future movable properties with the commissioning of Enven 1.3, the debt is expected to gradually decrease over the medium term. (including investments) of Engro PROFILE Corporation Limited but excluding present . Engro Corporation Limited (formerly Engro Chemicals Pakistan Limited) is listed on all three stock and future trademarks and copyrights of exchanges of the country. Dawood Group holds a majority stake (~48%) in ECL. ECL has a thirteen ECL and excluding its shares in Engro member board. The chairman of the board is Mr. , a well known professional veteran. The Energy Limited and Engro Polymer & CEO, Mr. , an MBA with significant professional experience, has been associated with the Chemicals Limited. company for long. Apart from the CEO, there is equal representation on the board: four members from the Dawood Group, four from the company’s 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 PACRA’s written consent. Our reports and ratings constitute opinions, not recommendations to buy or to sell. Tel: 92 (42) 35869504 Fax: 92 (42) 35830425 www.pacra.com HOLDING COMPANY

The Pakistan Credit Rating Agency Limited

1. RATINGS ENTITY NEW PREVIOUS* . Very high credit Long Term AA AA Short Term quality A1+ A1+ TFCs AA - PKR 4,000mln * Assigned to Engro Chemical Pakistan Limited.

AA+

AA

AA-

A+

June June April May May June June May 2003 2004 2005 2006 2007 2008 2009 2010

2. PROFILE 2.1 Incorporated in Stock Price - Volume chart 16,000 320 . ECPL renamed as 1965, Engro Chemical Engro Corporation Pakistan Limited was 14,000 Limted (ECL) renamed as Engro 12,000 240 10,000 . A diversified Corporation Limited (ECL) on January 01, 8,000 160

6,000 (PKR) Price . 2010, following a Significant fertilizer Volume(Thousands) presence demerger of the fertilizer 4,000 80 business to Engro 2,000 Fertilizer Limted (EFL). - -

ECL is listed on all the stock exchanges of the Volume (L.H.S.) Closing price (R.H.S.) 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 ECL’s strong capacity to raise sizable capital in times of any contingency, as evidenced in the company’s history as well. ECL’s head office is located in . 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 ECL’s subsidiaries and joint venture/ associated companies along with the company’s ownership and investment (at cost) in each:

Engro Vopak Terminal Engro Corporation Limited Ltd. (Joint Venture) as at Jun10 50% (PKR 450 mln)

Engro Management Engro Foods Ltd. Engro EXIMP Ltd. Ltd. Engro Powergen Ltd. Services Ltd. 100% 100% 100% 100%

100% owned (PKR 6,216mln) (PKR 480mln) (PKR 10,739mln) (PKR 387mln) Wholly

(PKR 2.5mln) subsidaries 70% 30%

Engro Polymer & Avanceon Ltd. Engro Energy Ltd. Chemicals Ltd. 63% 95% 56% (PKR 382mln) (PKR 3,040mln)

(PKR 3,651mln) Subsidaries

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

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2.3 ECL and its subsidiaries have won numerous awards from the (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 3.1 Dawood Group (DG) holds a Shareholding Pattern as at Dec09 . Majority owned by majority stake in ECL through direct Dawood Group and indirect shareholding. DG, a . Dawood Group – a distinguished and trusted name in 28% diversified business Pakistan, traces its origins back to 38% group almost a century ago. The current 48%

shareholding pattern of the company is shown in the graph. 18% 10% 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 4.1 ECL’s board of directors comprises thirteen members including the CEO. Apart . Experienced BoD from the CEO, there is equal representation on the board: four members from the Dawood members with Group, four from the company’s management and four independent directors. The diverse professional pertinent details of all board members are given as follows: background . Four independent No. Name Key Experience Representative Committees directors Mr. Hussain Dawood Chairman – Engro Corporation Limited Chairman - Board . Strong committees 1 [MBA – Northwestern Chairman – Dawood Hercules Chemicals Limited DG Compensation University, USA] structure Chairman – Pakistan Poverty Alleviation Fund Committee

Mr. Samad Dawood CEO – Dawood Corporation Limited 2 [BSc – University College Chairman – Central Insurance Company Limited DG Audit Committee London, UK] Director – Sui Northern Gas Pipelines Limited

CEO – Dawood Hercules Chemicals Limited Mr. Shahzada Dawood Chairman – Dawood Lawrencepur Limited Board Compensation 3 [LLB & MA Global Textile DG Marketing – University of Director – National Mines (Pvt.) Limited Committee Philadelphia, USA] Director – Sach International (Pvt.) Limited

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Director Strategy and Business - Dawood Hercules Mr. Isar Ahmed Chemicals Limited 4 DG Audit Committee [FCA & MA Economics] Ex Head of Business Unit – Reckitt Benckiser Ex MD – Haleeb Foods Limited CEO – Engro Corporation Limited Mr. Asad Umar CEO – Engro Fertilizers Limited 5 [MBA – Institute of Business Employee - Administration] Director State Bank of Pakistan Director – Pakistan Institute of Corporate Governance Mr. Ruhail Group CFO Mohammad 6 Ex CFO – Trans Gulf Finance Corporation Employee - [CFA & MBA – Institute of Business Administration] Ex CEO – Sigma Leasing (Pvt.) Limited Mr. Khalid Mansoor CEO – Engro Energy Limited 7 Employee - [Chemical Engineer] CEO – Engro Powergen Limited Mr. Asif Qadir CEO – Engro Polymer & Chemicals Limited 8 [Chemical Engineer – Director – Engro Powergen Limited Employee - Columbia, USA] Director – Engro Energy Limited Mr. Khalid Subhani Designated CEO – Engro Fertilizer Limited 9 [Chemical Engineer & MBA Director – Engro Polymer & Chemicals Limited Employee - – University of Berkley, USA] Director – Engro Energy Limited Chairman – Audit Mr. Shabbir Hashmi Committee 10 Private Equity Consultant – Actis Assets Limited Independent [MBA – JF Kennedy Board Compensation University, USA] Committee Director – Pakistan Industrial Development Corporation Mr. Arshad Nasar Board Compensation 11 Ex CEO & chairman – Oil & Gas Development Independent [MA Economics & Political Committee Science] Company Limited Ex MD – Caltex Oil Pakistan Director – National Clearing Company of Pakistan Mr. Ali Ansari CEO – Dewan Drilling Limited 12 Independent Audit Committee [BA Economics – Richmond Ex CEO – AKD Securities College, UK] Ex COO – Credit Lyonnais Securities

Mr. Saad Raja 13 [MA Management – London Asset Management – Industrial Bank of Japan Independent - Business School, UK]

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.

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5. MANAGEMENT 5.1 The management of ECL lies . Highly professional in the hands of five executives

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

committees 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 . 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 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 ECL’s 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 Functions Frequency

Responsible for addressing appropriate operational issues plus Asad Umar – CEO ECL managerial appointments at subsidiary/ associate level. The Ruhail Mohammad – CFO ECL Executive Committee committee operates as an advisory body for the Group CEO, and Tahir Jawaid - VP HR Quarterly (ExCom) helps in bringing synergy amongst the various businesses within All designated CEO's of subsidiaries the Group, while augmenting decision making and consensus Ali Akbar - Secretary building.

Responsible for providing leadership and strategic guidance on Corporate Health, Safety and Environment Asad Umar – CEO ECL Health, Safety and Environment improvement initiatives while Quarterly (HSE) Committee All designated CEOs of subsidiaries ensuring compliance with regulatory standards and international benchmarks.

Responsible for the review of Compensation, Organization and Compensation, Organization and Employee Asad Umar – CEO ECL Employee Development matters of all people excluding employee Quarterly Development (COED) committee All designated CEOs of subsidiaries directors and senior executives.

6. SYSTEMS & 6.1 ECL maintains an effective control environment with clear reporting lines and CONTROLS well defined policies and procedures. The review and accountability function runs through . Strong control the entire organizational structure. The role of the company, as a holding entity, is to environment provide for and sustain the activities of its investments as a whole. Therefore, to maintain . SAP 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 ECL’s 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. PERFORMANCE 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 . Significant holding which PKR 10,740mln in robust fertilizer Dividend History constitutes ECL’s holding in 3,000 sector EFL. The main income . Continued focus on 2,500 component for ECL is three core sectors dividends received from its 2,000 investments. A graph illustrating historic dividend 1,500

patterns is given. The total in PKR mln 1,000 investment income reported for 2009 amounted to PKR 500 1,885mln (2008: PKR 2,605mln) emanating from 0 FY07 FY08 FY09 1H10 Engro Eximp (Pvt.) Limited Engro Vopak Terminal Ltd. Engro Polymer & Chemicals 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

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of each entity’s respective revenue Revenues (PKR mln) and profitability for the six months ending June10 is shown. 1,072 757

7.2 Going forward, the EFL company envisages continued focus Engro Foods on three core sectors: 1) Fertilizer, 5,000 9,421 EPCL 2) Food and 3) Energy, while 2,007 diversifying into other lucrative EPL/EEL business opportunities such as Engro Eximp chemicals, storage services, 6,597 Engro Vopak 9,833 business automations, import/ Avanceon 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, the company’s income stream is (94) expected to be highly correlated to 518 the performance of group entities EFL and their ability to generate Engro Foods 2,012 EPCL positive cash flows. Although 973 some ventures of the company are EPL/EEL likely to remain non-earning in the Engro Eximp initial phase, they are expected to 379 Engro Vopak develop a stable revenue stream (449) Avanceon over the medium term; Engro (179) Energy is expected to contribute towards ECL’s 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. EFL’s urea plant, with a capacity of 975,000tons per annum, is located at Dharki, whereas NPK plant is situated at Port Qasim. EFL’s 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 EFL’s 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 company’s 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 ECL’s 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 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 PEPCO’s 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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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 company’s 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 & 8.1 Following the demerger as FUNDING on January 01, 2010, all fertilizer Capital Structure . Assets/ liabilities assets/ liabilities were transferred to 150,000 transferred to EFL the balance sheet of EFL with ECL 125,000 . Corporate carrying the equity investment in guarantee to EFL subsidiaries at cost. Nevertheless, 100,000 . High quantum of following the demerger, un- 75,000 appropriated profits of ECPL Planned consolidated debt (mln) PKR 50,000 . TFCs in the offing amounting to PKR 9,250mln, as well as a cash & bank balance of 25,000 PKR 3,501mln at end Dec09, have been retained on the books of ECL. - The capital structure of the Pre de-merger Post de-merger Post de-merger (consolidated) (consolidated) (stand alone) company, pre and post demerger are Dec 31,2009 June30, 2010 given in the chart. Equity Borrowings 8.2 With the issue of TFCs of PKR 4,000mln, ECL’s 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 parent’s (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 group’s 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) Page 9 of 10 AUGUST 2010 www.pacra.com

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 ECL’s 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 PKR 4,000mln (including green shoe option of PKR 2,000mln) Tenor 3 years Profit Rate 14.5% p.a. Principal At the end of 3 years or early through Put Option. Incase the put option is exercised; the Repayment 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 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. Trustee IGI Investment Bank Limited

Arsalan Ahmed Jhangeer Hanif Analysts +92 42 3586 9504 +92 42 3586 9504 [email protected] [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 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 PACRA’s written consent. Our reports and ratings constitute opinions, not recommendations to buy or to sell.

ENGRO CORPORATION LIMITED (ECL) Page 10 of 10 AUGUST 2010 www.pacra.com

The Pakistan Credit Rating Agency Limited 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 67.81 Investments 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 7,152.72 4 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 The Pakistan Credit Rating Agency Limited 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-08 Unaudited

A Turnover 1. UreaOwn Manufactured 16,136.46 15,508.82 2. DAPPurchased 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 2.59 2 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 The Pakistan Credit Rating Agency Limited Engro Corporation Limited (formerly Engro Chemical Pakistan Limited) 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 losses The Pakistan Credit Rating Agency Limited Engro Corporation Limited (formerly Engro Chemical Pakistan Limited) 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%

The Pakistan Credit Rating Agency Limited

GLOSSARY OF TERMS USED BY PACRA (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

The Pakistan Credit Rating Agency Limited

STANDARD RATING SCALE & DEFINITIONS

LONG TERM RATINGS SHORT TERM RATINGS AAA: Highest credit quality. ‘AAA’ ratings denote the lowest A1+: Obligations supported by the expectation of credit risk. They are assigned only in case of highest capacity for timely repayment. exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. A1:. Obligations supported by a strong capacity for timely repayment. 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 A2: Obligations supported by a significantly vulnerable to foreseeable events. satisfactory capacity for timely repayment, although such capacity may A: High credit quality. ‘A’ ratings denote a low expectation of be susceptible to adverse changes in credit risk. The capacity for timely payment of financial business, economic, or financial commitments is considered strong. This capacity may, conditions. nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. A3: Obligations supported by an BBB: Good credit quality. ‘BBB’ ratings indicate that there is adequate capacity for timely repayment. currently a low expectation of credit risk. The capacity for timely Such capacity is more susceptible to payment of financial commitments is considered adequate, but adverse changes in business, economic, adverse changes in circumstances and in economic conditions are or financial conditions than for more likely to impair this capacity. This is the lowest investment- obligations in higher categories. grade category.

BB: Speculative. ‘BB’ ratings indicate that there is a possibility B: Obligations for which the capacity of credit risk developing, particularly as a result of adverse for timely repayment is susceptible to economic change over time; however, business or financial adverse changes in business, economic, alternatives may be available to allow financial commitments to or financial conditions. be met. Securities rated in this category are not investment grade.

B: Highly speculative. ‘B’ ratings indicate that significant C: Obligations for which there is an credit risk is present, but a limited margin of safety remains. inadequate capacity to ensure timely Financial commitments are currently being met; however, repayment. capacity for continued payment is contingent upon a sustained, favourable business and economic environment. D: Obligations which have a high risk CCC, CC, C: High default risk. Default is a real possibility. of default or which are currently in Capacity for meeting financial commitments is solely reliant upon default. sustained, favourable business or economic developments. A ‘CC’ rating indicates that default of some kind appears probable. ‘C’ ratings signal imminent default. Notes: 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 security’s market price or suitability for a particular investor.