PACRA Maintains Entity Ratings of Pakistan Refinery Limited

The ratings reflect the resilient business profile of Pakistan Refinery Limited (PRL) emanating from its sustainable operational history and its strategic importance in the domestic context. PRL's core business remains exposed to the vicissitudes in international crude oil and products prices, which in turn, steer the Gross Refining Margins (GRMs) of the company. During FY19, volatile oil prices coupled with a sharp rupee depreciation emerged as one of the key challenges to PRL and the Refinery Sector as a whole. Resultantly, overall refinery margins remained under pressure hampering the profitability of the sector. PRL margins are also impacted on account of low HSD price, due to non-installation of DHDS Unit for producing Euro-II compliant Diesel. Another major issue encountered to the Refining Sector was the declining demand of Furnace Oil (FO), as the Government took steps to shift power sector needs to alternate fuels like LNG and coal. The recent trend, however, is reflecting a revival, as is evident from a stabler rupee and favorable FO prices. This is expected to augur well for the company. The Premium Motor Gasoline (PMG) and crude oil negative delta, which also played a role, has now reversed. With PSO as the main Sponsor on back and an expected stability on the macro-front, PRL now embarks on upgradation project in their refinery complex, being at a very preliminary stage, as of today. This is expected to pitch benefits for the company, when materialized.
The ratings are dependent on improved performance indicators, particularly refining and net margins. Adequacy of cashflows viz-a-viz debt servicing remains critical for the ratings. Meanwhile, prudent financial discipline amidst new funding needs, is imperative.

About the Entity
PRL is a public company incorporated in Pakistan in 1960. The refinery is situated at Korangi, while it has a tank terminal to store products at the Keamari terminal. PRL, having refinery capacity of 2.1mln tons per annum, came fully online in Oct’62. PRL, a hydroskimming refinery, is designed to process various imported and local crude oil to meet the strategic and domestic fuel requirements of the country. Majority shareholding in the company is held by Pakistan State Oil (~52.6%), HASCOL (~14.7%), Shell (~3.5%) and individuals (~18.3%). The company has an eleven member board (including the CEO). Board comprises six non-executive, four independent and one executive board member. PRL’s auditors, A. F. Ferguson & Co Chartered Accountants, a member firm of the PwC network, expressed an unqualified opinion on the company’s financial statements as at End-Jun19. Mr. Zahid Mir, the Managing Director and CEO of PRL, is a petroleum engineer by profession and has a Masters degree in Business Administration. He is supported by a team of qualified and competent individuals.