Riyadh: Tassnief has assigned initial long-term entity rating of “A-” (Single A Minus) to Middle East Paper Company (‘MEPCO’ or ‘the Company’) with a short-term rating of T-3. The outlook on the rating is “Stable”. Tassnief considers the rated issuer to hold high creditworthiness and thus low credit risk although the risk profile may vary with changes in economic / sector conditions.

Rating Rationale: The assigned ratings incorporate MEPCO’s leading market position with the Company being one of the largest manufacturers of containerboard in the region. Ratings also reflect Company’s diversified product offerings (11 products including tissue manufacturing) & sales mix in terms of local and export sales which is a competitive advantage over peers, exposure to fast growing sectors and strong operating performance in terms of consistently high-capacity utilization. The Company’s satisfactory liquidity profile, sound capitalization indicators and conservative financial policy are also key rating drivers. With planned expansions, long-term borrowings are expected to increase over the rating horizon; however, Tassnief anticipates leverage indicators to remain within manageable levels.

Ratings are constrained by inherent cyclicality in business dynamics, which leads to volatility in revenues and margins and current oversupply situation in select markets which might continue to limit pricing power for industry players. Going forward, the Company is in the process of doubling its capacity for containerboard and tissue manufacturing and forward integrating into the corrugated boxes segment which will strengthen market position, diversify product offerings & revenue streams and facilitate in reducing volatility in revenues and margins.

Rating Triggers: Successful execution of expansion initiatives, which leads to an increase in scale of operations and financial flexibility will be a positive rating trigger. Moreover, Company’s ability to reduce volatility in business and financial risk profile through successful execution of diversification efforts remains important.

About the Company: MEPCO is a Saudi Joint Stock Company registered in the Kingdom of Saudi Arabia under the commercial registration number 4030131516 dated September 30, 2000. MEPCO and its subsidiaries, collectively referred to as "the Group", are involved in the manufacturing and sale of containerboard, industrial paper, and tissue paper. MEPCO was listed on Tadawul on May 3, 2015. Ratings also account for sound corporate governance framework which draws comfort from board composition being in line with best practices, effective board oversight, formalized succession planning framework, structured decision-making process and sound internal control framework. Transparency and disclosures are satisfactory and provide important information for the stakeholders. Tassnief believes that Company’s ESG considerations will support sustainability of operations in an industry characterized by high water & energy intensity and deforestation.  

For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext. 6627) at +966-112506627 or email at RS@Tassnief.com.

RELATED CRITERIA AND METHODOLOGY

Rating Methodology for Corporate (v.2. 2019) can be found on the website: www.tassnief.com