Karachi, December 03, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of ‘AA+/A-1+’ (Double A Plus /A-One Plus) to Pakistan State Oil Company Limited (PSO). The long-term rating of ‘AA+’ indicates high credit quality; Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. The short-term rating of ‘A-1+’ signifies highest certainty of timely payment; Short-term liquidity, including internal operating factors and /or access to alternative sources of funds, is outstanding and safety is just below risk free Government of Pakistan’s (GoP) short-term obligations. Outlook on the assigned ratings is Stable. Previous rating action was announced on December 08, 2020.
The assigned ratings derive strength from PSO’s majority and controlling interest vested with GoP and the company’s strategic and nationally important position in Pakistan’s energy sector. Ratings also factor in PSO’s position as the largest oil marketing company (OMC) in terms of market share, supported by the largest storage capacity and marketing network in the country alongside a diversified product portfolio. Moreover, ratings also take into account company’s healthy cash flows, sizeable retail cash transactions and propensity of state support in distressed situations. However, persistence of circular debt (pertaining to LNG and FO business) has resulted in liquidity challenges for PSO as depicted by elevated levels of trade debts mainly due to increase in LNG related receivables from SNGPL.
Industry sales volumes of HSD, PMG and FO after declining by 11% in FY20 increased by 18% during FY21 on account of recovery in macroeconomic indicators across the country post COVID-19. A hike in FO volumes was noted (a growth of 37% in FY21) due to higher electricity demand and shortage of natural gas for power generation. Volumes for HSD and MOGAS depicted an increase of 18% and 13% respectively in FY21. Going forward, industry volumes are expected to depict growth momentum in view of greater projected demand from automobile and power sectors.
Strategic initiatives over the medium term include undertaking significant investment in storage, marketing and refining infrastructure in order to retain market share given the increasingly competitive landscape. The ratings are dependent on maintaining sound financial profile despite a challenging operating environment, retaining market share in the backdrop of rising competition and focused management of trade debts.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/