PACRA Upgrades the Rating of Gas & Oil Pakistan Limited | PP Sukuk

Gas & Oil Pakistan Limited ('GO' or the 'Company') benefits from a strategic partnership with Aramco, which acquired a ~40% stake in the Company. Aramco, a globally significant player in the energy and chemicals sector, is expected to reshape the dynamics of Pakistan's OMC sector and the Company's operations moving forward. GO operates a vast network of retail outlets, comprising ~1,293 stations, including ~55 company-owned and company-operated (COCO) sites. Eleven of these COCO sites have been rebranded under the Aramco name. Additionally, the Company holds the second-largest storage capacity in the sector, with ~205,038 MTs, and generates income through hospitality services. GO is involved in the procurement of petroleum, oil, and lubricants (POL) from both local and international markets, as well as the storage, distribution, and marketing of these products. GO has also stabilized both its business and financial risks. The Company has seen growth in its topline and profits, and this performance is expected to remain sustainable. Although lower volumes from weak demand and regulated pricing of POL products have posed challenges, The Company is managing its marketing initiatives effectively and expects to generate stable cash flows. Moreover, an equity injection by Aramco, through a right issue, has strengthened the Company's overall financial footing. The Company's working capital-related challenges have also been streamlined, backed by considerable supply credit, now available from Aramco. This has reduced the Company's reliance on borrowings. These improvements have enhanced its coverage ratios, providing an additional financial cushion.
The ratings are dependent on keeping the growth trajectory, as a consequence of the above mentioned association with Aramco including materialization of other governance and control related matters.

About the Entity
Gas & Oil Pakistan Limited was incorporated as a public unlisted company in 2012 under the repealed Companies Act 2017. The Company obtained the license to operate as an OMC across Pakistan from OGRA in 2019. Lately, Aramco has acquired a ~40% stake in the Company, while ~60% stake resides with GO. All legal and filing formalities are complete, and the BoD composition has also changed accordingly. The Company has a ten-member Board; four members represent Aramco, and the other six are nominated by GO. Mr. Tariq Kirmani chairs the Board, while Mr. Khalid Riaz heads the Company as the CEO. To enhance transparency, a few prominent management positions are appointed by Aramco.

About the Instrument
In Dec-21, GO issued a rated, secured, privately placed sukuk with a total value of PKR 2.5bln. The sukuk offers a rate of 3-Month KIBOR + 1.75% per annum and has a five-year tenor. Redemption of the sukuk will occur in sixteen equal quarterly installments. To ensure the upcoming coupon payments, the Debt Payment Account (DPA) is funded 100% from a designated account 30 days before each coupon payment date. The Company has recently made markup payments of PKR 86.6mln on 30th Sep-24, and PKR 64mln on 31st Dec-24. Additionally, two principal installments of PKR 156.2mln each were paid on 30th Sep-24 and 31st Dec-24 respectively.