Description
A credit rating evaluates the credit worthiness of a debtor, especially a business (company) or a government. It is an evaluation made by a credit rating agency of the debtor's ability to pay back the debt and the likelihood of default
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CRAB Ratings
Project Finance Credit Rating Report
ALO AGRO PROCESS INDUSTRIES LIMITED
Rationale Rating Long Term Date of Rating Valid Till : BB 1 : 06 March 2011 : 31 August 2011 Credit Rating Agency of Bangladesh Limited (CRAB) has assigned „ BB 1 ? (Pronounced Double B One) rating to Alo Agro Process Industries Limited (hereinafter referred to as AAPIL or the project) for producing Bio-fertilizer, Microbial fertilizer, Organic fertilizer and Natural fertilizer, with rated capacity of 20,000 MT. CRAB expects financial risks to remain moderate in medium term. The cost of the project has been estimated by sponsors at BDT 192.47 million, of which BDT 76.98 million will be financed from equity and the remaining BDT 115.49 million will be financed by debt at a debt to equity ratio of 60:40. A project rated in this category indicates considerable variability in the risk factors. The protective factors are average. Adverse changes in business/economic circumstances or even government policies may affect debt servicing capability. For this project working capital management is primary risk mitigating factor. More specifically, in supply chain various items like Press mud or Coco dust etc. (raw material) should be procured during a specific period of a year and for bulk quantity to pile up for a long time. For that reason the project may not enjoy such flexibility to produce more when demand is over the caps of stored raw materials. Even the project will have not more chance to deferring its payable. On the other hand, as the end users are farmers which lifts a chance of delay in realization of sales proceeds. Initial cash flow generation may sloth because the project has no established
Methodology: www.crab.com.bd__________ Analysts:
Nafiz Iftekhar
Financial Analyst [email protected]
Md. Anwar Hossain Junior Financial Analyst
[email protected]
Project Cost
BDT in Million
Particulars Equity Debt Total Project Cost 39.80 119.98 2.42 20.63 0.50 2.00 0.50 0.50 0.12 6.02 192.47
Land & Land Development Building & Civil Work Imported Local Furniture & Fixture Vehicle Cost of Installation Preliminary Expenses Contingencies IDCP Total Fixed Cost
39.80 33.13 0.42 1.63 0.50 0.50 0.50 0.50 76.98
86.85 2.00 19.00 1.50 0.12 6.02 115.49
Means of Finance
Equity 40% Debt 60%
Page 1 of 3
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CRAB Ratings
Project Finance
distribution channel as well as prior experience in similar line of business in that area, though the sponsors have targeted local market and northern area of the Bangladesh. So, it can be a challenge initially to institute an effectual distribution channel and capable marketing team. Positive side of this project is, it is more dependable on own utility facilities like Bio-gas plant for running the generator which in turn sourcing the electricity; it owns deep tube well for water sourcing; even other raw material items like bio-slurry can be gathered from Bio-gas plant and from other sister concern “ Shelaidah Dairy ”. The project is not dependent on foreign market, so it is free from foreign exchange risk. There are two advantages for the farmers who use bio-fertilizers; it is cheaper than chemical fertilizer; and it is eco-friendly that is using bio- fertilizer will keep and even grow up nutrient of soil. The profitability and cash flow of the project are disposed to changes in business variable, capacity utilization and management?s strategic plans. The Project is more sensitive to mark up that can be set after considering all its manufacturing and operating expenses. Markup is the major concern for the project since squeezing the mark up affects the coverage of debt obligation as well as generation of sufficient fund to smoothing day to day operation. Sensitivity analysis, considering all assumption variables ? ranged movement reveals that NPV, MIRR, Discounted Payback Period (DPBP), Net Benefit to Cost Ratio (NBCR) and Debt Service Coverage Ratio (DSCR), Loan Life Coverage Ratio (LLCR) and Cost of Goods Sold as percentage of sales are more sensitive to Finished product price, Raw material price fluctuation and moderately sensitive to inventory days outstanding and cost of debt. From the stress testing it has been revealed that if the project can not utilize at least 57% of its capacity project may not be capable of paying debt service from its own cash flow subject to the mark up goes down to 38% from 54% in base case. The cost of the project would be financed through debt finance of BDT 115.49 million (60% of Total project cost) from commercial bank, which has raised the leverage position of the project to highly risky, though group support can be considered as risk mitigating factor. The demand of such project is countrywide high; in the era of eco concern this project will add value socially as well as environmentally. The rating evaluation reveals that the proposed project is susceptible to adverse economic conditions or changing circumstances like upward trend in raw material s price, cost of debt, capacity utilization at top level as per market demand which may eventually affect the expected cash flow. Sensitivity analysis and stress testing have been done to capture the above-mentioned risk, which depicts that the cash flow of the proposed project is more sensitive to manufacturing and operating cost, Promotional activities, and working capital management.
Page 2 of 3
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CRAB Ratings
Long Term Rating AAA Triple A AA1, AA2, AA3* Double A A1, A2, A3 Single A Definition
Project Finance
CRAB RATING SCALES AND DEFINITIONS
Projects rated AAA have extremely strong capacity to meet financial commitments. These are judged to be of the highest quality, with minimal credit risk. Projects rated AA have very strong capacity to meet financial commitments. These are judged to be of very high quality, subject to very low credit risk. Projects rated A have strong capacity to meet financial commitments, but susceptible to the adverse effects of changes in circumstances and economic conditions. These are judged to be of high quality, subject to low credit risk. Projects rated BBB have adequate capacity to meet financial commitments but more susceptible to adverse economic conditions or changing circumstances. They are subject to moderate credit risk. Such rated projects possess certain speculative characteristics. Projects rated BB have inadequate capacity to meet financial commitments. They have major ongoing uncertainties and exposure to adverse business, financial, or economic conditions. Such projects have speculative elements, and are subject to substantial credit risk. Projects rated B have weak capacity to meet financial commitments. They have speculative elements and are subject to high credit risk. Projects rated CCC have very weak capacity to meet financial obligations. They have very weak standing and are subject to very high credit risk. Projects rated CC have extremely weak capacity to meet financial obligations. They are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. Projects rated C are highly vulnerable to non-payment, have payment arrearages allowed by the terms of the documents, or subject of bankruptcy petition, but have not experienced a payment default. Payments may have been suspended in accordance with the instrument's terms. They are typically in default, with little prospect for recovery of principal or interest. D rating will also be used upon the filing of a bankruptcy petition or similar action if payments on an obligation are jeopardized.
BBB1, BBB2, BBB3 Triple B
BB1, BB2, BB3 Double B B1, B2, B3 Single B CCC1, CCC2, CCC3 Triple C CC Double C
C Single C
D (Default)
*Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
© Copyright 2008, CREDIT RATING AGENCY OF BANGLADESH LIMITED ("CRAB"). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT CRAB?S PRIOR WRITTEN CONSENT. All information contained herein is obtained by CRAB from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and CRAB, in particular, makes no representation or warranty, express or implie d, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall CRAB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of CRAB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if CRAB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY CRAB IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling.
Page 3 of 3
doc_632374298.pdf
A credit rating evaluates the credit worthiness of a debtor, especially a business (company) or a government. It is an evaluation made by a credit rating agency of the debtor's ability to pay back the debt and the likelihood of default
`
CRAB Ratings
Project Finance Credit Rating Report
ALO AGRO PROCESS INDUSTRIES LIMITED
Rationale Rating Long Term Date of Rating Valid Till : BB 1 : 06 March 2011 : 31 August 2011 Credit Rating Agency of Bangladesh Limited (CRAB) has assigned „ BB 1 ? (Pronounced Double B One) rating to Alo Agro Process Industries Limited (hereinafter referred to as AAPIL or the project) for producing Bio-fertilizer, Microbial fertilizer, Organic fertilizer and Natural fertilizer, with rated capacity of 20,000 MT. CRAB expects financial risks to remain moderate in medium term. The cost of the project has been estimated by sponsors at BDT 192.47 million, of which BDT 76.98 million will be financed from equity and the remaining BDT 115.49 million will be financed by debt at a debt to equity ratio of 60:40. A project rated in this category indicates considerable variability in the risk factors. The protective factors are average. Adverse changes in business/economic circumstances or even government policies may affect debt servicing capability. For this project working capital management is primary risk mitigating factor. More specifically, in supply chain various items like Press mud or Coco dust etc. (raw material) should be procured during a specific period of a year and for bulk quantity to pile up for a long time. For that reason the project may not enjoy such flexibility to produce more when demand is over the caps of stored raw materials. Even the project will have not more chance to deferring its payable. On the other hand, as the end users are farmers which lifts a chance of delay in realization of sales proceeds. Initial cash flow generation may sloth because the project has no established
Methodology: www.crab.com.bd__________ Analysts:
Nafiz Iftekhar
Financial Analyst [email protected]
Md. Anwar Hossain Junior Financial Analyst
[email protected]
Project Cost
BDT in Million
Particulars Equity Debt Total Project Cost 39.80 119.98 2.42 20.63 0.50 2.00 0.50 0.50 0.12 6.02 192.47
Land & Land Development Building & Civil Work Imported Local Furniture & Fixture Vehicle Cost of Installation Preliminary Expenses Contingencies IDCP Total Fixed Cost
39.80 33.13 0.42 1.63 0.50 0.50 0.50 0.50 76.98
86.85 2.00 19.00 1.50 0.12 6.02 115.49
Means of Finance
Equity 40% Debt 60%
Page 1 of 3
`
CRAB Ratings
Project Finance
distribution channel as well as prior experience in similar line of business in that area, though the sponsors have targeted local market and northern area of the Bangladesh. So, it can be a challenge initially to institute an effectual distribution channel and capable marketing team. Positive side of this project is, it is more dependable on own utility facilities like Bio-gas plant for running the generator which in turn sourcing the electricity; it owns deep tube well for water sourcing; even other raw material items like bio-slurry can be gathered from Bio-gas plant and from other sister concern “ Shelaidah Dairy ”. The project is not dependent on foreign market, so it is free from foreign exchange risk. There are two advantages for the farmers who use bio-fertilizers; it is cheaper than chemical fertilizer; and it is eco-friendly that is using bio- fertilizer will keep and even grow up nutrient of soil. The profitability and cash flow of the project are disposed to changes in business variable, capacity utilization and management?s strategic plans. The Project is more sensitive to mark up that can be set after considering all its manufacturing and operating expenses. Markup is the major concern for the project since squeezing the mark up affects the coverage of debt obligation as well as generation of sufficient fund to smoothing day to day operation. Sensitivity analysis, considering all assumption variables ? ranged movement reveals that NPV, MIRR, Discounted Payback Period (DPBP), Net Benefit to Cost Ratio (NBCR) and Debt Service Coverage Ratio (DSCR), Loan Life Coverage Ratio (LLCR) and Cost of Goods Sold as percentage of sales are more sensitive to Finished product price, Raw material price fluctuation and moderately sensitive to inventory days outstanding and cost of debt. From the stress testing it has been revealed that if the project can not utilize at least 57% of its capacity project may not be capable of paying debt service from its own cash flow subject to the mark up goes down to 38% from 54% in base case. The cost of the project would be financed through debt finance of BDT 115.49 million (60% of Total project cost) from commercial bank, which has raised the leverage position of the project to highly risky, though group support can be considered as risk mitigating factor. The demand of such project is countrywide high; in the era of eco concern this project will add value socially as well as environmentally. The rating evaluation reveals that the proposed project is susceptible to adverse economic conditions or changing circumstances like upward trend in raw material s price, cost of debt, capacity utilization at top level as per market demand which may eventually affect the expected cash flow. Sensitivity analysis and stress testing have been done to capture the above-mentioned risk, which depicts that the cash flow of the proposed project is more sensitive to manufacturing and operating cost, Promotional activities, and working capital management.
Page 2 of 3
`
CRAB Ratings
Long Term Rating AAA Triple A AA1, AA2, AA3* Double A A1, A2, A3 Single A Definition
Project Finance
CRAB RATING SCALES AND DEFINITIONS
Projects rated AAA have extremely strong capacity to meet financial commitments. These are judged to be of the highest quality, with minimal credit risk. Projects rated AA have very strong capacity to meet financial commitments. These are judged to be of very high quality, subject to very low credit risk. Projects rated A have strong capacity to meet financial commitments, but susceptible to the adverse effects of changes in circumstances and economic conditions. These are judged to be of high quality, subject to low credit risk. Projects rated BBB have adequate capacity to meet financial commitments but more susceptible to adverse economic conditions or changing circumstances. They are subject to moderate credit risk. Such rated projects possess certain speculative characteristics. Projects rated BB have inadequate capacity to meet financial commitments. They have major ongoing uncertainties and exposure to adverse business, financial, or economic conditions. Such projects have speculative elements, and are subject to substantial credit risk. Projects rated B have weak capacity to meet financial commitments. They have speculative elements and are subject to high credit risk. Projects rated CCC have very weak capacity to meet financial obligations. They have very weak standing and are subject to very high credit risk. Projects rated CC have extremely weak capacity to meet financial obligations. They are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest. Projects rated C are highly vulnerable to non-payment, have payment arrearages allowed by the terms of the documents, or subject of bankruptcy petition, but have not experienced a payment default. Payments may have been suspended in accordance with the instrument's terms. They are typically in default, with little prospect for recovery of principal or interest. D rating will also be used upon the filing of a bankruptcy petition or similar action if payments on an obligation are jeopardized.
BBB1, BBB2, BBB3 Triple B
BB1, BB2, BB3 Double B B1, B2, B3 Single B CCC1, CCC2, CCC3 Triple C CC Double C
C Single C
D (Default)
*Note: CRAB appends numerical modifiers 1, 2, and 3 to each generic rating classification from AA through CCC. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
© Copyright 2008, CREDIT RATING AGENCY OF BANGLADESH LIMITED ("CRAB"). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT CRAB?S PRIOR WRITTEN CONSENT. All information contained herein is obtained by CRAB from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and CRAB, in particular, makes no representation or warranty, express or implie d, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall CRAB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of CRAB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if CRAB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY CRAB IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling.
Page 3 of 3
doc_632374298.pdf