Credit Rating Report On BSRM Iron & Steel Company Limited

CREDIT RATING REPORT
On
BSRM IRON & STEEL COMPANY LIMITED
REPORT: RR/1579/12
Address:
CRISL
Nakshi Homes
(4th & 5th Floor)
6/1A, Segunbagicha,
Dhaka-1000
Tel: 9515807-8
9514767-8
Fax: 88-02-9565783
Email:
crisldhk@crislbd.com
Analysts:
Bipul Barua
bipul@crisl.org
A.K.M Saidur Rahman
saidur@crisl.org
Entity Rating
Long Term: A+
Short Term: ST-3
Outlook: Stable
BSRM IRON & STEEL
COMPANY LIMITED
ACTIVITY
Manufacturing of graded
Billet
DATE OF
INCORPORATION
April 13, 2005
CHAIRMAN&
MANAGING DIRECTOR
Mr. Alihussain Akberali,
FCA
EQUITY
Tk.1,346.90 million
TOTAL ASSETS
Tk.6,176.55 million
This is a credit rating report as per the provisions of the Credit Rating Companies Rules 1996. CRISLs entity rating is valid
one year for long-term rating and 6 months for short term rating. CRISLs Bank loan rating (blr) is valid one year for long
term facilities and up-to 365 days (according to tenure of short term facilities) for short term facilities. After the above
periods, these ratings will not carry any validity unless the entity goes for surveillance.
CRISL followed Corporate Rating Methodology published in CRISL website www.crislbd.com
Date of Rating
Surveillance Rating
Outlook
Bank Loan Ratings :
Bank/FIs
A.B Bank Ltd.
AL-Arafah Islami Bank Ltd.
Dhaka Bank Ltd.
Eastern Bank Ltd.
IIDFC
Janata Bank Ltd.
Islami Bank BD Ltd.
Mercantile Bank Ltd.
Mutual Trust Bank Ltd.
One Bank Ltd.
Prime Bank Ltd.
Shahjalal Islami Bank Ltd.
United Commercial Bank Ltd.
Social Islami Bank Ltd.
IPDC of Bangladesh Ltd.
United Leasing Co. Ltd.
June 28, 2012

Long Term
A+
Stable
Mode of Exposure (Figures in Million Tk.)
*WCL of Tk.520.00
**WCLO of Tk.44.88
***TLO of Tk.10.10
WCL of Tk.120.00
TLO of Tk.303.26
WCL of Tk.350.00
****STLO of Tk. 983.44
WCL of Tk.60.00
WCLO of Tk.136.90
WCLO of Tk.271.53
WCL of Tk.400.00
WCL of Tk.800.00
WCLO of Tk.156.81
WCLO of Tk.26.78
WCL of Tk.150.00
WCLO of Tk.25.15
TLO of Tk.108.73
TLO of Tk.48.28
Short Term
ST-3
Ratings
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AAAAAAAAAAAAAAAAAAAAAAAAAA-
*WCL Working Capital Limit **WCLO Working Capital Loan Outstanding ***TLO Term Loan Outstanding ****STLO
Syndicated Term Loan Outstanding
1.0
RATIONALE
CRISL has reaffirmed the Long Term rating of BSRM Iron & Steel Company Limited (BISCO) to
A+ (pronounced as single A plus) and the Short Term rating to ST-3 on the basis of its both
relevant quantitative and qualitative information up to the date of rating. The above ratings
have been reassigned due to consistent maintenance of fundamentals such as sound
infrastructural arrangement, strong forward linkage, experienced & qualified management
team, strong Group support etc. However, the above factors are moderated, to some extent,
by debt based capital structure, declining profitability trend, volatile price of raw materials,
absence of structured cost sharing policy etc.
Entities rated in this category are adjudged to offer adequate safety for timely repayment of
financial obligations. This level of rating indicates a corporate entity with an adequate credit
profile. Risk factors are more variable and greater in periods of economic stress than those
rated in the higher categories. The short term rating indicates good certainty of timely
payment. Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to financial markets is good with
small risk factors.
In assigning bank loan ratings (blr) CRISL also factored the security offered against the loan.
In addition to normal primary security, CRISL also reviewed the other security arrangements
against the loan. In consideration of the above, CRISL assigned the bank loan rating by one
notch above the entity rating subject to the security arrangements against the exposure.
CRISL also placed the company with Stable Outlook considering that its existing
fundamentals may remain unchanged in the foreseeable future.
2.0
Page 1 of 12
COMPANY PROFILE
BSRM Iron & Steel Company Limited, a high grade billet manufacturing company has been
operating as a sister concern of BSRM Group and is a subsidiary company of BSRM Steels

On
A sister concern of BSRM

Group
Subsidiary concern of
BSRM Steels Ltd.
Limited (BSRMSL). BISCO is one of the largest steel billet manufacturing plants in the country
with production capacity of 150,000 M. Ton per annum. Entire output (i.e. Billet) of the
company is consumed by BSRMSL. The company was incorporated on April 13, 2005 as a
private limited company under the Companies Act, 1994 and went into commercial production
on June 01, 2010. During the period under surveillance, no change in the ownership structure
of the company has been noticed. Mr. Alihussain Akberali, FCA is the Chairman and Managing
Director of the company having 29 years of experience in the steel industry and is now
considered as a business wizard in the same field. However, on February 24, 2011 the
company converted into public limited company (non-listed) by splitting its share value from
Tk.100.00 to Tk.10.00. At present, paid up capital of BISCO stood at Tk.1,100.00 million
against an authorized capital of Tk.3,000.00 million. The plant is located at 202-205,
Nasirabad Industrial Area, Baizid Bostami Road, Chittagong having its Head Office at Ali
Mansion, Sadarghat Road, Chittagong.
CRISL rated BISCO in the previous year and based on its fundamentals it was assigned A+
(pronounced as A plus) rating in the long term and ST-3 rating in the short term. The
company carried the rating comforts such as equity based capital structure, sound
infrastructural arrangement, experienced management, strong Group support, huge market
vacuum of quality product etc. with some constraints. This report is being prepared as a part
of rating surveillance, which covers the changes that took place in the fundamentals of the
company and might have an impact on the above ratings.
3.0
Good product quality
During the period under surveillance, no change in business operation has been observed. The
company has one of the largest steel billet manufacturing plants in the country with
production capacity of 150,000 M. Ton per annum. BISCO is established to manufacture prime
quality billet includes two different sizes like 130mm x 130m x 6/12m & 160 x 160 x 6/12m,
which is the basic raw material of MS Rod production. BISCO is an import substitute plant
operating as the backward linkage of BSRMSL. Besides steel melting works unit of Bangladesh
Steel Re-Rolling Mills Limited also involves in manufacturing MS Billet with a production
capacity of 120,000 M. Ton per annum. The said two concerns supply about 40% of Groups
in-house consumption. However, the rest are met through import from different countries.
Presently, quality billet manufacturers are very few in number and almost all the billet
manufacturers produce to meet their in-house consumption. A few players in this sector are
Kabir Group, Sheema Group, CSS Corporation Ltd., Ratanpur Steel Re-Rolling Mills Ltd.
(RSRM), Ehsan Steels Ltd. etc. In order to cope with the increasing demand, the Group also
envisages setting up another billet manufacturing plant located at Mirsarai, Chittagong.
4.0
Pioneer in steel industry
Page 2 of 12
BUSINESS OPERATION
GROUP SUMMARY
BSRM Group is known for its long exposures in different sub-sectors of steel industry including
scrap processing, billet manufacturing, manufacturing of MS Rod, Wire Rod as well as in other
ancillary operations. The Group started its journey in 1952 with steel business under the
splendid initiatives of five brothers (African Origin) of a single family. The successors of the
family have been successfully running the Group since long and it is regarded as one of the
best managed steel industry in the country.
According to the financial statement provided by the Group, consolidated asset base of the
Group stood at Tk.40,941.42 million as on December 31, 2011. Against the same, the Group
has outside liabilities of Tk.30,359.29 million and equity of Tk. 10,582.13 million, representing
a debt equity ratio of 74:26 respectively. As on date mentioned above, the Groups turnover
stood at Tk.51,529.98 million. All the Group concerns are running profitably. The above
financial position reflects that the Group is operating with a moderate equity base having
leverage of about 2.87 times.

On
The Group has been maintaining strong relation with different private commercial banks and
non bank financial institutions with a regular debt serving history. As on December 31, 2011 the Groups loan outstanding position stood at Tk.18,030.93 million as a short term loan and
Tk.2,615.22 million as long term loan.
5.0
CORPORATE GOVERNANCE
During the period under surveillance no major change in the management structure has been
observed. The Board members looks after the different policy related issues of the company.
All the Board members are eminent personalities having good experience in the same
industry.
5.1
Corporate Management
The operations of BISCO are being looked after by an experienced management team having
wide exposures in the Steel industry. A brief about the key professionals has been described
below:
Qualified & Experienced

management
Age
(Years)
Year of
Joining
Mr. Tapan Sengupta

Mr. Kazi Anwar Ahmed
Executive Director
General Manager
55
61
1982
1989
Mr. Md. Firoz
Head of Business
and product
Development
CFO-Group and
Company
Secretary
Head of Finance &
Accounts
Chief Financial
Officer
Head of Human
Resource
Head of Supply
Chain
General Manager
(Factory)
General Manager
(Sales &
Marketing)
AGM ( HR &
Admin)
58
2003
50
2002
M.Com
(Acct.), FCA
21
38
2007
FCA
13
35
2011
M.Com, ACA
42
2012
15
36
2008
M.Com
(Acct.)
MBA
56
2009
29
45
2009
B.Sc.
Eng.(Mech.)
MBA
(Marketing)
55
2006
29
Sr. Manager
(ERP-Project)
Sr. Manager
(Commercial)
Sr. Manager
(Accounts &
Finance)
37
2003
Post graduate
in Personnel
Management
MBA
68
2001
B. Com
34
49
2005
B. Com, CA
(CC)
23
Mr. Shekhar Ranjan Kar,

FCA
Mohammed Reazul Kabir,
FCA
Mr. Biplob Kanti Banik,
ACA
Mr. Ashfaq Amin
Chowdhury
Mr. Mohd. Imtiaz Uddin
Chowdhury
Mr. Azizul Haque
Mr. Shobhan Mahbub
Shahabuddin
Mr. A. Gaffar
Mr. Harun ur Rashid
Mr. Motaherul Hoque
Mr. Md. Habibullah
Page 3 of 12
Qualification and
Experience
Qualification
Experience
(Years)
B. Com
30
M.A
31
(Economics)
B. Sc. Eng.
31
(Mech.)
Designation
Name
10
16
11
BISCO follows the same human resource policy of the Group. The separate Human Resources
Department of the Group looks after different HR related policies including recruitment,
performance evaluation, promotion, firing etc. To meet up modern organization needs, BSRM
Group has shaped its HR system and the organizations structure by taking consultancy
support from PricewaterhouseCoopers (PwC). As on May 2012, BISCO has 328 employees;
out of them management employees are 113, non management employees are 215 (including
161 technicians). Besides, the company also deploys casual workers to support the smooth
operation. In order to improve the human resources and their quality in line with the modern

On
business need, BISCO has established its policy for training of its employees. It arranges inhouse training program to adjust the employees with modern operation. The Group has
strong IT (Information Technology) infrastructure facilities with modern equipments and an IT
department. The business and financial operations of the company are conducted and
exercised through an established internal control system. The internal audit department
having 11 members verifies and follows-up the activities of the internal control procedures
and reports directly to the Managing Director. The cell is free from any bar to conduct audit.
6.0
Good market demand
INDUSTRY OVERVIEW
M.S Billet is used as the basic raw material for producing various types of iron and steel
products. The demand for steel will inevitably grow in line with the countrys economic and
infrastructural development. Major buyers of mild steel and re-rolled products include
individuals, government and institutional buyers (developers). The governments
infrastructure development activities are an important source of demand. The demand of MS
Rod in Bangladesh has been increasing day by day and is expected to increase at the growth
rate of 8% to support economic and infrastructural development of the country, expansion of
urbanization and booming construction of shopping mall, market, real estate and other
construction for industrial purposes. Construction of bridge, culvert as well as public
awareness and preference is increasing for quality building materials to ensure safety and
better building construction; more particularly, in recent time to save from earthquake, which
also helps for growing the industry. Due to growing consciousness among buyers and the
generic nature of the products; new manufactures with efficient and high quality technology
will dominate over the existing players using old technology, because of their quality and price
advantage. It has been revealed that current billet production is insignificant which indicates
the supply gap of billet in the market.
7.0
BUSINESS PERFORMANCE
(Year ended on 31st December)
Improving business
performance
Indicators
Installed Capacity (in M. Ton)
Production (in M. Ton)
Capacity Utilization (%)
Turnover (in M. Ton)
Turnover (in Million Tk.)
Sales Growth (%)
Cost of Goods Sold (In Million Tk.)
COGS Growth (%)
Gross Profit (in Million Tk.)
Profit After Tax (in Million Tk.)
Profit Growth (%)
FY2011
150,000
121,679
81
122,433
6,507.64
99.41
5,903.64
98.89
604.00
136.98
24.61
FY2010
150,000
78,243
51
76,490
3,263.48
2,968.34
295.14
109.93
-
During the period under surveillance the company has successfully enhanced its capacity
utilization to 81% in FY2011 within a span of more than one and half years of operation. The
company has increased production as well as sales which are reflected in the table above. Due
to the volatility of scrap steel both in national & international market the company faced
challenge to keep its production costs under control. Besides, the scarcity of gas and
electricity hampers the smooth flow of production which in turn restricts to attain economics
of scale. However, the sales growth in relative measure was better than the same of cost of
goods sold (COGS) growth indicating the companys good absorption capacity of production
cost with the sales price. However, the net profit growth is significantly low than sales growth
due to huge administrative & financial expenses. CRISL views that the company reported
good business performance in FY2011 as compared to previous year.
Page 4 of 12

On
8.0
Declining profitability
FINANCIAL PERFORMANCE
Indicators
Return on Average Assets After Tax (ROAA)%
Return on Average Equity After Tax (ROAE)%
Return on Average Capital Employed After Tax (ROACE)%
Gross Profit Margin %
Operating Profit Margin %
Net Profit Margin%
Cost to Revenue Ratio %
Admin. Expenses to Revenue Ratio %
Finance Cost to Revenue Ratio %
Earning Per Share (EPS) (Restated on Tk.10)
FY2011
2.51
10.71
5.49
9.28
8.64
2.10
90.72
0.65
6.39
1.25
FY2010
3.44
12.88
5.70
9.04
8.74
3.37
90.96
0.30
5.27
1.00
Overall financials of the company reveals a good performance over the last two years through
the above indicators. Comparative analysis revealed that the gross profit margin of BISCO
slightly increased in FY2011 due to comparatively lower increase of cost of sales than
revenue. The cost efficiency of the company largely depends on the price of the main raw
material i.e. scrap and sponge iron. The price of scrap and sponge iron is about 80%-85% of
the cost of goods sold. The company procures scraps both from local and international market
with the sharing of about 45:55 although another major raw material i.e. sponge iron is
procured from international market. However, operating profit margin and net profit margin
decreased due to huge administrative and financial expenses in FY2011. In line with the
same, ROAA, ROAE and ROACE were also decreased in FY2011 mainly due to comparative
decrease of net profit against assets, equity and capital employed respectively.
9.0
Debt based capital

structure
CAPITAL STRUCTURE AND SOLVENCY
BISCO is a debt based company as its capital structure contains specific long term bank loan
in addition to short term bank financing. As on December 31, 2011, the total assets of the
company stood at Tk.6,176.55 million which was financed by total shareholders equity of
Tk.1,346.90 million (21.81%), short-term loan Tk.2,349.88 million (38.05%), other current
liabilities of Tk.839.07 million (13.58%) and the balance Tk.1,640.70 million (26.56%) by
long term bank loan.
Indicators
Leverage Ratio (X)
Bank Borrowing to Equity (X)
Equity Multiplier (X)
Internal Capital Generation (%)
FY2011
3.59
2.96
4.59
0.11
FY2010
2.93
2.76
3.93
0.13
The companys bank dependency is yet to reach at comfortable level moreover; dependency is
increasing as observed from the above table. However, equity multiplier (which describes a
companys total assets per taka of shareholders equity) has been getting comfortable.
Internal capital generation of the company decreased due to higher equity growth than profit.
10.0
Moderate liquidity
Page 5 of 12
LIQUIDITY AND CASH FLOW ANALYSIS
Indicators
Current Ratio (X)
Quick Ratio (X)
Cash Conversion Cycle (Days)
FY2011
1.03
0.83
79
FY2010
1.14
0.85
101
BISCO has been operating with moderate liquidity due to its relatively comfortable cash
conversion cycle which stands at about 79 days in FY2011 due to planned safety stock and
duly credit collection from buyer namely BSRMSL. The Current ratio and Quick ratio fell
slightly in FY2011. In analyzing the cash flow position of BISCO, total fund from operation
stood at Tk.290.56 million. After arranging all operational procedure, operating cash flow of

On
the concern stood at Tk.106.61 million which might not be adequate to support its capital
expenditure as well extended working capital requirement and to support the same the
company raised bank/ outside finance during the period. However, as a sister concern of
renowned corporate house which has good reputation in money market as well as having
funding flexibility within the Group, the concern might not face any financial crisis.
11.0
FINANCIAL INSTITUTION LIABILITIES
11.1
Liability Position & Repayment Performance
Due to sound credibility and good market image, BISCO has been enjoying financial flexibility
to raise fund from bank and financial institutions. As on May 31, 2012, total outstanding bank
loan of BISCO stood at Tk.2,641.48 million (as short term loan of Tk.1,187.67 million and
long term loan of Tk.1,453.81 million). A summarized position of the above stands as follows:
(Figure in Million Tk.)
Limit Sanctioned
Bank & FIs
A.B Bank Ltd.

AL-Arafah Islami
Bank Ltd.
Significant bank liabilities
with regular loan
repayment history
Dhaka Bank Ltd.
Mode
Under
Group
Individual
IIDFC
Janata Bank Ltd.
520.00
900.00
26.20
10.10
L/C, LTR, OD
120.00
6.68
Regular
293.61
303.26
7.50
Regular
Regular
L/C, LTR,
Time Loan
Syn. Term
Loan
CC (H)
350.00
*1,362.00
983.44
44.88
Regular
Regular
60.00
59.52
Regular
Islami Bank BD
Ltd.
Mercantile Bank
Ltd.
Mutual Trust Bank
Ltd.
One Bank Ltd.
L/C, LTR, BM
2,000.00
136.90
Regular
L/C, LTR,
Time Loan
L/C,LTR, SOD
1,500.00
271.53
Regular
400.00
13.31
Regular
L/C,LTR, OD
800.00
121.90
Regular
Prime Bank Ltd.
L/C,LTR, OD
750.00
156.81
Regular
2,000.00
26.78
Regular
150.00
18.61
Regular
800.00
25.15
Regular
150.00
108.73
Regular
60.00
48.28
Regular
2,903.61
1,453.81
1,187.67
Shahjalal Islami
Bank Ltd.
United Commercial
Bank Ltd.
Social Islami Bank
Ltd.
IPDC of
Bangladesh Ltd.
United Leasing Co.
Ltd.
Total
L/C, LTR, BM
L/C, LTR, OD
L/C,LTR, BM
Term Loan
Lease Finance
7,950.00
Note: * BISCO has taken syndicated term loan of

Development Finance Co. (IIDFC) is the lead arranger
Development Bank Ltd., Bank Asia Ltd., City Bank Ltd.,
Ltd., One Bank Ltd., Rupali Bank Ltd., Sonali Bank Ltd.,
Bank Ltd. and Dhaka Bank Ltd.)
Page 6 of 12
Repayment
Status
L/C, LTR, TL,

OD
L/C, LTR ,
Baim (C)
HPSM
Lease Finance
Eastern Bank Ltd.
Outstanding
Amount as on
31.05.2012
Term
Short
Loan
Term
Loan
298.10
Tk.1,362.00 million where Industrial & Infrastructural

of the syndication finance with 13 banks ( Bangladesh
Eastern Bank Ltd., Janata Bank Ltd., Mutual Trust Bank
Standard Bank Ltd., Trust Bank Ltd., United Commercial

On
11.2
Security Arrangement against Loan Exposures
The mode of the security offered under each banking facilities are summarized below:
Bank/FIs
A.B Bank Ltd.
AL-Arafah Islami
Bank Ltd.
Dhaka Bank Limited
Eastern Bank Ltd.
Adequate security
arrangement
IIDFC
Janata Bank Ltd.
Islami Bank BD Ltd.
Page 7 of 12
Security Arrangement
Primary Security:
i.
5% cash margin on L/C
ii.
Trust receipt
iii. Hypothecation of stock and receivable
iv. Usual charge documents
Support /Guarantee:
i.
Directors personal guarantee
ii.
Corporate guarantee
iii. Post dated cheque.
Primary Security:
i.
5% cash margin on L/C
ii.
DP Note
iii. Trust Receipt
iv. Hypothecation of goods (Steel scrap, Billets)
v.
Usual charge documents
Support/Guarantee:
i.
ii.
Corporate guarantee
iii. Post dated cheques
Primary Security:
i.
5% Cash margin on L/c
ii.
Advance lease deposit of 1 months lease rental to be obtained
iii. Ownership of the machinery to be imported
Support/Guarantee:
i.
Post dated cheque
ii.
Corporate guarantee
iii. Directors personal guarantee
Primary Security:
i.
ii.
Parri-passu charge on stock
iii. Parri-passu charge on Book debt of the company
Secondary Security/Collateral:
i.
1st priority fixed and floating charge over all plant, machinery,
equipment and floating assets.
ii.
1st priority registered mortgage along with IGPA on 2.68 acres of land
situated at 202-205 Nasirabad I/A, Chittagong.
Support /Guarantee:
i.
ii.
Corporate guarantee
Primary Security:
i.
ii.
Hypothecation of machinery, furniture & fixtures, equipments etc.
Secondary Security/Collateral:
i.
Registered mortgage on project land, building on 1st ranking parri- passu basis.
Support /Guarantee:
i.
ii.
Corporate guarantee
Primary Security:
i.
ii.
Submission of charge documents
Support/Guarantee:
i.
Primary Security:
i.
5% cash security on CFR value
ii.
10% cash security on landed cost
iii. Pledge of Bai-Murabaha goods
iv. Hypothecation on stocks & book debts
Secondary Security:
i.
Reg. Mortgage of 1,205.75 decimal of vacant land.
ii.
2nd charge on the present and future assets including book debts of
BSRM in favor of bank with the Registrar of RJSC.
Support/Guarantee:
i.
Personal Guarantee
ii.
Corporate Guarantee

On
Bank/FIs
Mercantile Bank Ltd.
Mutual Trust Bank

Ltd.
One Bank Ltd.
Prime Bank Ltd.
Shahjalal Islami
Bank Ltd.
United Commercial
Bank Ltd.
Social Islami Bank

Ltd.
IPDC of Bangladesh
Ltd.
Page 8 of 12
Security:
10% Cash margin on L/C
LC related documents
Trust Receipt
Hypothecation of stock & Book debts
Usual Charge documents
/ Guarantee:
Directors Personal guarantee.
Un-dated Cheque
Security:
/Guarantee:
Corporate guarantee
Post dated cheque
Security:
i.5% Cash L/C margin
DP Note
Registered hypothecation by way of charge with RJSC on inventory,
Receivables and Plant & Machinery.
Support/Guarantee:
i.
ii.
Corporate guarantee
iii. Post dated cheques
Primary Security:
i.
ii.
L/C related shipping documents
iii. Usual charge documents
iv. Hypothecation of stock
Secondary Security/ Collateral:
i.
2nd charge on all fixed & floating assets
Support/Guarantee:
i.
Corporate guarantee
ii.
iii. Post dated cheque
Primary Security:
i.
Trust Receipt
ii.
Hypothecation of stock
iii. Usual Charge documents
Support/ Guarantee:
i.
Cross corporate Guarantee
ii.
Post dated Cheques.
iii. Directors Personal Guarantee
Primary Security:
i.
ii.
Support /Guarantee:
i.
Corporate guarantee
ii.
Post dated cheque
Primary Security:
i.
5% margin on L/C
ii.
L/C related shipping documents
Primary
i.
ii.
iii.
iv.
v.
Support
i.
ii.
Primary
i.
ii.
Support
i.
ii.
Primary
i.
ii.
iii.
iii.
Hypothecation of raw materials to be imported /purchase under bank finance
iv. Usual charge documents

Support/Guarantee:
i.
ii.
Corporate guarantee
iii. Post dated cheque for Tk. 1,400.00 million
Primary Security:
i.
Floating charge on all the movable assets of the company, duly
registered with RJSC
ii.
Security cheque of Tk. 150.00 million
iii. DP note
Support /Guarantee:
i.
ii.
Corporate guarantee

On
Bank/FIs
United Leasing
Company Ltd.
12.0
Primary
i.
ii.
iii.
Support
i.
ii.
Security:
Refundable lease advance of Tk. 1.78 million
DP Note
/Guarantee:
Corporate guarantee
RISK MANAGEMENT
CRISL reviewed the following risks in the previous year for BISCO, which are yet to be
mitigated.
12.1
Financial Risk
The company is enjoying a significant amount of working capital loan and term loan, which
occupies the major portion of the total liability. This type of dependency creates financial cost
burden that grabs a significant portion of the mark up. Moreover, recent imposition of tax on
gross receipt of the company may create an extra financial burden. However, the company is
regular in VAT and tax payment.
12.2
Supply Risk
BISCO generally procures about 55% raw materials through import from India, USA, New
Zealand, South Africa, UK, Poland and Australia and the balance 45% from local sources
especially from ship breakers. The company may not face any risk in case of import supply
due to availability and reliable supply source although it may face problem for local sourcing
due to present vulnerable position of ship breaking industry.
Exposure to interest rate

risk
12.3
Interest Rate Risk
The company has to depend highly on bank fund for working capital management. As a bank
fund borrower, the entity needs to pay a significant amount of bank interest and charge.
Bangladesh Bank has moved to remove the interest rate ceiling on lending in the wake of a
massive liquidity crisis in the financial market letting the price to be determined by functioning
of demand-supply interaction. This measure may invite interest rate instability which also
would create volatility in the profitability of corporate houses like BISCO.
12.4
Market Risk
The company may not face any major market risk as the entire finished products are
consumed by BSRMSL. Presently, BSRMSL has commendable market reputation which
exposed the company to low market risk.
Exposure to price
fluctuation risk
Page 9 of 12
12.5
Price Fluctuation and Exchange Rate Risk
Raw material prices are exposed to risk due to volatility of its prices in the international
market including fluctuation of exchange rate. During 2011, the prices of scrap and sponge
iron in international market rose significantly. The rise in input prices can only be
compensated through increasing the selling price without compromising the quality. Such
increase in prices pushed the company to sell the graded billets at comparatively higher prices
lowering its market competitiveness. Exchange rate risk arises from currency fluctuation in
international trade. If Bangladeshi Taka is devalued and/or foreign currency revalued then the
price of imported billets will go up which will decrease the overall profit margin. Thus the
company has a high exposure of price fluctuation risk.
12.6
Changes in Govt. Policy
In General, Bangladesh economy is an example of many sick industry created out of the
change of the government policy. The Government policy changes frequently with the change
of government. Reverse impact on investment returns could stem from a change in
government, legislative bodies, other foreign policy makers or military control. BISCO may
suffer from such loss in the case of tightened foreign exchange repatriation rules or from
increased credit risk if the government changes policies to make it difficult for the company to
pay creditors. Government may change the import
duty on MS scrap and sponge iron

On
which will affect not only BISCO but also all other above based mills.
13.0
OBSERVATION SUMMARY
Rating Comforts:
Sound infrastructural arrangement
Strong forward linkage
Experienced & qualified management

team
Strong Group support
Rating Concerns:
Debt based capital structure
Declining profitability trend
Volatile price of raw materials
Exposure to financial risk
Exposure to interest rate risk
Exposure to price fluctuation risk
Absence of structured cost sharing

policy
Business Prospects:
Huge market exposure
Capacity expansion
Business Challenges:
Gas shortage in Chittagong zone
Increased competition in the industry
Changes in Government policy
14.0
PROSPECTS
The demand for MS Billet is expected to continue to rise at a greater rate in future in line with
steel industrys growth in the countrys economic development and requirement for
infrastructural support. However, CRISL believes that under the dynamic leadership of Mr.
Alihussain Akberali, the management team of BISCO will be able to remove present
shortcomings of the organization and will be one of the best MS Billet manufacturing company
in Bangladesh in terms of providing quality product.
END OF THE REPORT
(Information used herein is obtained from sources believed to be accurate and reliable. However, CRISL does not
guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or
omissions or for the results obtained from the use of such information. Rating is an opinion on credit quality only
and is not a recommendation to buy or sell any securities. All rights of this report are reserved by CRISL. Contents
may be used by news media and researchers with due acknowledgement)
[We have examined, prepared, finalized and issued this report without compromising with the matters of any
conflict of interest. We have also complied with all the requirements, policy procedures of the SEC rules as
prescribed by the Securities and Exchange Commission.]
Page 10 of 12

On
CRISL RATING SCALES AND DEFINITIONS

LONG-TERM RATINGS OF CORPORATE
RATING
AAA
Triple A
(Highest Safety)
AA+, AA, AA(Double A)

(High Safety)
A+, A, ASingle A
(Adequate
Safety)
BBB+, BBB,
BBBTriple B
(Moderate
Safety)
BB+, BB, BBDouble B
(Inadequate
Safety)
B+, B, BSingle B
(Risky)
CCC+,CCC,
CCCTriple C
(Vulnerable)
CC+,CC, CCDouble C
(High
Vulnerable)
C+,C,CSingle C
(Extremely
Speculative)
D
(Default)
DEFINITION
Investment Grade
Entities rated in this category are adjudged to be of best quality, offer highest safety and have
highest credit quality. Risk factors are negligible and risk free, nearest to risk free Government
bonds and securities. Changing economic circumstances are unlikely to have any serious impact on
this category of companies.
Entities rated in this category are adjudged to be of high quality, offer higher safety and have high
credit quality. This level of rating indicates a corporate entity with a sound credit profile and
without significant problems. Risks are modest and may vary slightly from time to time because of
economic conditions.
Entities rated in this category are adjudged to offer adequate safety for timely repayment of
financial obligations. This level of rating indicates a corporate entity with an adequate credit profile.
Risk factors are more variable and greater in periods of economic stress than those rated in the
higher categories.
Entities rated in this category are adjudged to offer moderate degree of safety for timely repayment
of financial obligations. This level of rating indicates that a company is under-performing in some
areas. Risk factors are more variable in periods of economic stress than those rated in the higher
categories. These entities are however considered to have the capability to overcome the abovementioned limitations.
Speculative Grade
Entities rated in this category are adjudged to lack key protection factors, which results in an
inadequate safety. This level of rating indicates a company as below investment grade but deemed
likely to meet obligations when due. Overall quality may move up or down frequently within this
category.
Entities rated in this category are adjudged to be with high risk. Timely repayment of financial
obligations is impaired by serious problems which the entity is faced with. Whilst an entity rated in
this category might be currently meeting obligations in time through creating external liabilities.
Entities rated in this category are adjudged to be vulnerable and might fail to meet its repayments
frequently or it may currently meeting obligations in time through creating external liabilities.
Continuance of this would depend upon favorable economic conditions or on some degree of
external support.
Entities rated in this category are adjudged to be very highly vulnerable. Entities might not have
required financial flexibility to continue meeting obligations; however, continuance of timely
repayment is subject to external support.
Entities rated in this category are adjudged to be with extremely speculative in timely repayment of
financial obligations. This level of rating indicates entities with very serious problems and unless
external support is provided, they would be unable to meet financial obligations.
Default Grade
Entities rated in this category are adjudged to be either already in default or expected to be in
default.
Note: For long-term ratings, CRISL assigns + (Positive) sign to indicate that the issue is ranked at the upper-end of its generic rating category and (Minus) sign to indicate that the issue is ranked at the bottom end of its generic rating category. Long-term ratings without any sign denote mid-levels
of each group.
ST-1
ST-2
ST-3
ST-4
ST-5
ST-6
Page 11 of 12
SHORT-TERM RATINGS OF CORPORATE

Highest Grade
Highest certainty of timely payment. Short-term liquidity including internal fund generation is very
strong and access to alternative sources of funds is outstanding. Safety is almost like risk free
Government short-term obligations.
High Grade
High certainty of timely payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small.
Good Grade
Good certainty of timely payment. Liquidity factors and company fundamentals are sound.
Although ongoing funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
Moderate Grade
Moderate liquidity and other protection factors qualify an entity to be in investment grade. Risk
factors are larger and subject to more variation.
Non-Investment/Speculative Grade
Speculative investment characteristics. Liquidity is not sufficient to ensure discharging debt
obligations. Operating factors and market access may be subject to a high degree of variation.
Default
Entity is in default or is likely to default in discharging its short-term obligations. Market access for
liquidity and external support is uncertain.

On
CRISL RATING SCALES AND DEFINITIONS

BANK LOAN/ FACILITY RATING SCALES AND DEFINITIONS- LONG-TERM
RATING
DEFINITION
blr AAA
Investment Grade
(blr Triple A)
Bank Loan/ Facilities enjoyed by banking clients rated in this category are adjudged to have
(Highest Safety)
highest credit quality, offer highest safety and carry almost no risk. Risk factors are negligible
and almost nearest to risk free Government bonds and securities. Changing economic
circumstances are unlikely to have any serious impact on this category of loans/ facilities.
blr AA+, blr AA, blr
Bank Loan/ Facilities enjoyed by banking clients rated in this category are adjudged to have
AAhigh credit quality, offer higher safety and have high credit quality. This level of rating indicates
(Double A)
that the loan / facilities enjoyed by an entity has sound credit profile and without any
(High Safety)
significant problem. Risks are modest and may vary slightly from time to time because of
economic conditions.
blr A+, blr A,
Bank Loan/ Facilities rated in this category are adjudged to carry adequate safety for timely
blr Arepayment/ settlement. This level of rating indicates that the loan / facilities enjoyed by an
Single A
entity have adequate and reliable credit profile. Risk factors are more variable and greater in
(Adequate Safety)
periods of economic stress than those rated in the higher categories.
blr BBB+, blr BBB,
Bank Loan/ Facilities rated in this category are adjudged to offer moderate degree of safety for
blr BBBtimely repayment /fulfilling commitments. This level of rating indicates that the client enjoying
Triple B
loans/ facilities under-performing in some areas. However, these clients are considered to have
(Moderate Safety)
the capability to overcome the above-mentioned limitations. Cash flows are irregular but the
same is sufficient to service the loan/ fulfill commitments. Risk factors are more variable in
periods of economic stress than those rated in the higher categories.
blr BB+, blr BB,
Speculative/ Non investment Grade
blr BBBank Loan/ Facilities rated in this category are adjudged to lack key protection factors, which
Duble B
results in an inadequate safety. This level of rating indicates loans/ facilities enjoyed by a client
(Inadequate Safety)
are below investment grade. However, clients may discharge the obligation irregularly within
reasonable time although they are in financial/ cash problem. These loans / facilities need
strong monitoring from bankers side. There is possibility of overcoming the business situation
with the support from group concerns/ owners. Overall quality may move up or down
frequently within this category.
blr B+, blr B,
Bank Loan/ Facilities rated in this category are adjudged to have weak protection factors.
blr BTimely repayment of financial obligations may be impaired by problems. Whilst a Bank loan
Single B
rated in this category might be currently meeting obligations in time, continuance of this would
(Somewhat Risk)
depend upon favorable economic conditions or on some degree of external support. Special
monitoring is needed from the financial institutions to recover the installments.
blr CCC+, blr CCC,
Risky Grade
blr CCCBank Loan/ Facilities rated in this category are adjudged to be in vulnerable status and the
Triple C
clients enjoying these loans/ facilities might fail to meet its repayments frequently or it may
(Risky )
currently meeting obligations through creating external support/liabilities. Continuance of this
would depend upon favorable economic conditions or on some degree of external support.
These loans / facilities need strong monitoring from bankers side for recovery.
blr CC+, blr CC,
Bank Loan/ Facilities rated in this category are adjudged to carry high risk. Client enjoying the
blr CCloan/ facility might not have required financial flexibility to continue meeting obligations;
Double C
however, continuance of timely repayment is subject to external support. These loans /
(High Risky)
facilities need strong monitoring from bankers side for recovery.
blr C+, blr C,
Bank Loan/ Facilities rated in this category are adjudged to be extremely risky in timely
blr Crepayment/ fulfilling commitments. This level of rating indicates that the clients enjoying these
(Extremely
loan/ facilities are with very serious problems and unless external support is provided, they
Speculative)
would be unable to meet financial obligations.
blr D
Default Grade
(Default)
Entities rated in this category are adjudged to be either already in default or expected to be in
default.
SHORT-TERM RATINGS
Highest Grade
Highest certainty of timely payment. Short-term liquidity including internal fund generation is
blr ST-1
very strong and access to alternative sources of funds is outstanding, Safety is almost like risk
free Government short-term obligations.
High Grade
blr ST-2
High certainty of timely payment. Liquidity factors are strong and supported by good
fundamental protection factors. Risk factors are very small.
Good Grade
Good certainty of timely payment. Liquidity factors and company fundamentals are sound.
blr ST-3
Although ongoing funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
Satisfactory Grade
blr ST-4
Satisfactory liquidity and other protection factors qualify issues as to invest grade. Risk factors
are larger and subject to more variation.
Non-Investment Grade
blr ST-5
Speculative investment characteristics. Liquidity is not sufficient to insure against disruption in
debt service. Operating factors and market access may be subject to a high degree of variation.
blr ST-6
Default
Institution failed to meet financial obligations
Page 12 of 12

Credit Rating Report On BSRM Iron & Steel Company Limited

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CREDIT RATING REPORT

June 28, 2012