PACRA Maintains Entity Ratings of Attock Refinery Limited | Rating Watch

The ratings reflect ARL's sound risk absorption capacity emanating from its sizable equity base. ARL'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. The country’s refinery sector is going through some significant challenges for an extended period, majorly pertaining to upgradation of the refining complexes and management of furnace oil (FO) produce. The FO offtake has further obstacled on the export front as IMO 2020 came into play since Jan’20. Depressed crude and POL prices in the International market coupled with the underlying issues of the sector had hampered the performance indicators of the industry players in the outgoing year FY19. Adding to the woes, the global oil market was further struck by widespread uncertainty due to outbreak of COVID-19 pandemic. This had severely weakened the International Oil dynamics, creating a manifold impact on the domestic economy as well as the local refinery industry. Inventory accumulation, NRV adjustments and POL demand slide pressurized the GRMs and profitability margins of the sector players drastically. Nonetheless, the concerns are expected to reverse, going forward, as global prices head on a stabilization trajectory and demand takes a gradual uptick on account of eased lockdown. Having said this, uncertainty still prevails as to the timeliness of complete restoration and recovery of losses that the Industry has absorbed under the current situation. ARL's topline takes benefit of its value-added products; post installation of DHDS and isomerization plant. Free cashflows from operations, and in turn, coverages, have deteriorated in 9MFY20. ARL's strategic investments and sizable bank placements continue to contribute in the form of dividend and interest income. It provides support to the risk profile of the company. Recurring non-core income remained insufficient to absorb the net losses. The Company’s association with the country's only integrated oil group - Attock Group (AG) - demonstrates to be a source of comfort to the ratings.
The ratings remain dependent on ARL's ability to effectively shield its business profile from external vulnerabilities. Upholding of comforting factors, including income flow from other sources, remains imperative. The entity has been put on rating watch on account of inevitable factors and unprecedented situation of Covid-19 outbreak.

About the Entity
Attock Refinery Limited (ARL) is principally engaged in the refining of crude oil. The company primarily produces premium motor gasoline, jet fuels, kerosene, high-speed diesel, light diesel oil, furnace fuel oil, mineral turpentine oil, jute batching oil, solvent oil, LPG and various grades of bitumen. AG, through Attock Oil Company (~61%) and its group company Attock Petroleum Limited (~APL) (2%) retains the majority stake (~63%), and management control in ARL. Other major shareholders comprise a) Individuals (~22%), b) Banks and other Financial Institutions (~7%), c) Mutual funds (~1%), d) Foreign Investors (~0.4%), e) Joint Stock Companies (~2%), and Others (~4%). ARL's Board of Directors comprises seven members. Board consists of five non-executive members and two independent non-executive directors. The Chairman of the BoD, Mr. Shuaib A. Malik, is also the CEO of Attock Oil Group. Because of its listing status, financial transparency is considered strong as the company has to comply with the disclosures requirements of the regulators. Mr. Adil Khattak, the CEO, has extensive experience in the petroleum sector. He is supported by an experienced management team which has demonstrated stability over time.