The Pakistan Credit Rating Agency Limited
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Muhammad Harris Ghaffar

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PACRA Assigns Preliminary Rating to Gas & Oil Pakistan Limited | PP Sukuk

Rating Type Debt Instrument
(26-Jul-21 )
Action Preliminary
Long Term AA-
Short Term -
Outlook Stable
Rating Watch -

The rating reflects strength of the security structure. This strength primarily derives from a two-tiered liquid support structure. The first is a Reserve Account, which caters for one installment kept in advance throughout the tenor of the instrument. The second is that Debt Payment Account will be funded one month before the installment getting due. The instrument has also been secured by conventional charges on assets. The rating incorporates Gas & Oil Pakistan Limited, herein, referred to as GO’s, every increasing presence in the oil marketing (OMC) segment. The company has augmented its market share in a competitive market, benefiting from the strategic positioning of the stations that it feeds. The growth spree continues. GO aims to carry out its expansion strategy by further penetrating the retail segment of semi-urban and rural areas. The company has increased its storage capacity, consolidated from 130,160 MTs to 197,038 MTs including 36,288MTs which is leased from FTTL. This complements its tenacity to keep the pace of growth with this existing storage capacity. GO further aims to inaugurate more company owned and operated sites, which will further enhance the margins. GO has traditionally capitalized on strong managerial support from its sponsors who have significant knowledge in oil procurement and distribution. The equity base of the company has taken support from internal capital generation and higher accumulated profitability. The management intends to keep the leverage indicators aligned to its risk profile. The company aims to further improve their market share as it moves on its expansion drive, utilizing a mixture of internally generated equity and debt. Moving forward, GO aims to diversify its revenue streams, strengthening its business risk profile.
The rating captures the company’s ability to sustain its business despite challenges arising from outbreak of COVID-19. Rollout of the planned business strategy and sustainable profitability is essential. In the meantime, financial metrics needs to be upheld in terms of working capital ratios, coverages and capital structure.

About the Entity
Gas & Oil Pakistan Limited incorporated in 2012, was granted the license as an OMC in 2012. Gas & Oil started its operation in 2014 in Punjab region and later expanded its sales and marketing network into Sindh in 2016, KPK in 2017 and also Balochistan in 2019. With a network of approximately 800 retail outlets, Gas & Oil Pakistan has ~ 9.5% market share as of January-June 2021 based on the basis of MS/HOBC/HSD sales. The company has storage infrastructure of over 197,038 MT spread all across the country spread along with seven sites.
The majority shareholding of the company is owned by three individuals. Mr. Khalid Riaz (CEO and Chairman) has 58% stake in the company followed Mr. Shahzad Mubeen (21%), Mr. Bilal Ansari (11%) and VITOL Dubai Limited (10%) stake in the company. The Board of Directors comprises seven experienced professionals with four independent members.

About the Instrument
Gas & Oil Pakistan intends to issue a secured, rated, with the option of private placement under chapter 5C PSX rule book. Sukuk Issue of amount PKR 3bln inclusive green shoe option of PKR 500mln at an offer rate of 3 Month KIBOR + 1.35% p.a with a tenor of five (5) years, inclusive of 1 year grace period. Sukuk will be redeemed in sixteen (16) equal quarterly payments.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.