Press Release
VIS maintains entity ratings of Pakistan State Oil Company Limited (PSO)
Karachi, May 04, 2020: VIS Credit Rating Company Limited (VIS) has maintained 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. Previous rating action was announced on June 19, 2019.
The assigned ratings derive strength from PSO’s majority and controlling interest vested with GoP and the company’s strategic & nationally important position in Pakistan’s energy sector. Ratings also derive strength from 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, comfort is drawn from 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 business in particular) has resulted in liquidity challenges for PSO. The assigned ratings has been placed on ‘Rating Watch-Developing’ status given the sharp fall expected in industry volumes (due to partial lockdowns to prevent coronavirus outbreak) which alongwith steep decline in oil prices resulting in inventory losses will adversely impact financial profile of Oil Marketing Companies in the near term. VIS will continue to monitor developments as the situation evolves to assess the impact on financial profile of PSO. The ratings are dependent on maintaining sound financial profile despite a challenging operating environment, retaining market share in the back drop of rising competition and focused management of trade debts and exchange rate risk.
Industry sales volumes after declining by 22% in FY19 reduced further by 11% during 9MCY20. Macroeconomic slowdown along with availability of cheaper substitutes such as re-gasified LNG (RLNG) and coal in addition to increase in smuggled products from a neighboring country has contributed to reduction in industry volumes. Pressure in industry off-take along with existing players competing for market share is expected to result in increased competitive intensity in the OMC sector. Despite a challenging operating environment, PSO was able to re-coup market share in the ongoing year in the MS and HSD segment. 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.
For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) or the undersigned (Ext. 306) at 021-35311861-70 or email at info@vis.com.pk.
Faryal Ahmad Faheem
Deputy CEO
Applicable Rating Criteria:
Oil & Gas Industry (June 2019) https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Meth-OilGas201906.pdf
Industrial Corporates (April 2019) https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.pdf