PACRA Maintains Entity Ratings of Pakistan Refinery Limited

The ratings reflect the resilient business profile of PRL emanating from its sustainable operational history, strong demand for its products and its strategic importance in the domestic context. PRL's core business remains exposed to the vicissitudes in international crude oil, which in turn, may lead to reduced gross refining margins (GRMs). In the recent period, PRL's refining margins have suffered deterioration due to unfavorable prices of Crude Oil and Petroleum Products heightened by Exchange loss. The design of PRLs’ plant offers relatively limited flexibility; in turn, low margin and high exposure to the volatile dynamics of international crude oil and refinery product pricing. The respite is provided by the commissioned Isomerization plant, providing volumetric growth in petrol - a high-margin product. Additionally, margins are squeezed on account of HSD pricing, due to high Sulphur content, as the company did not install DHDS unit for making euro II compliant HSD, which in turn, affecting the profitability of the company.
The ratings could be impacted by prolonged constrain in refining margins and/or adverse changes in the existing regulatory framework leading to depressed core cash flows. Adequacy of cashflows viz-a-viz debt servicing remains critical for the ratings. Prudent management of financial matrix amidst new borrowing requirement is important.

About the Entity
Pakistan Refinery Limited is a public company incorporated in Pakistan in 1960. PRL’s refinery is situated at Korangi, while it has a Tank terminal to store products at the Keamari terminal. Pakistan Refinery Limited (PRL), having refinery capacity of 2.1mln tons per annum, came fully online in Oct’62. PRL, a hydroskimming refinery, designed to process various imported and local crude oil to meet the strategic and domestic fuel requirements of the country. Majority shareholding in PRL is held by Pakistan State Oil Company Limited (~53%), HASCOL (~15%), and Individuals (~20%).

The company has eleven member board (including the CEO). Board comprises eight non-executive, two independent and one executive board members. During the year, PRL’s auditors, A. F. Fergusons & Co Chartered Accountants., a member firm of the PwC network, expressed an unqualified opinion on the company’s financial statements as at end-Jun18. Mr. Aftab Husain, the Managing Director and CEO of PRL, is a Chemical Engineer by profession and has a master’s degree in Public Administration (MPA). He has been associated with the company for over three decades. He is supported by a team of qualified and competent individuals.

About the Instrument
PRL issued two TFCs during CY13. TFC I was redeemed at end Dec-16. TFC II, carrying a fixed profit rate of 10.75%, had a tenor of 5 years and was due for maturity in Dec'18. The company represents that payment has been made. We are seeking documentation of the same for our review and consequently procedural steps.