Press Release

VIS Reaffirms Entity Ratings of Pakistan State Oil Company Limited

Karachi, January 19, 2024: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Pakistan State Oil Company Limited (‘PSO’ or ‘the Company’) at 'AA+/A-1+' (‘Double A Plus’/ ‘A-One Plus’). Medium to 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. Short term rating of 'A-1+' indicates 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 short-term obligations. Outlook on the assigned ratings remains ’Stable’. Previous rating action was announced on December 13, 2022.

PSO, Pakistan's largest oil marketing company, is actively involved in petroleum, oil, and lubricant (POL) product storage, distribution, and marketing. Its extensive network includes 3,528 retail outlets, 9 installations, 19 depots, 14 airport refueling facilities, and operations at 2 seaports. Recent expansions include increase in storage capacity to 1.14 million tons, 49 new retail outlets, and establishment of 2 electric vehicle-charging stations. With lubricant plants blending capacity of 70 thousand tons annually, 13 LPG facilities and over 200 convenience stores, PSO serves customers nationwide.

Assigned ratings incorporate the Government of Pakistan's predominant ownership and acknowledge the Company's crucial national role in the domestic energy sector. The Company, being a strategic asset in the national energy landscape, possesses considerable influence owing to its substantial oil storage capacity, which constitutes nearly half of the nation's total. Ratings factor in the pivotal responsibility of ensuring the seamless supply of petroleum products to the domestic market and key stakeholders, underscoring its strategic importance for the country.

Assigned ratings further consider the Company's financial performance amid internal and external economic challenges. While FY23 witnessed a dip in sales volumes, the Company's revenue growth was primarily driven by elevated selling prices of petroleum products. The dip in volumes was attributed to various factors, including sluggish industrial activity, reduced local transport fuel consumption, weak auto sales, and high inflation. Margins remained constrained by volatility in international oil prices. However, in Q1FY24, gross profits recorded a sizeable uptick due to significant inventory gains on the back of substantial and continued hikes in fuel prices. PSO reported a significant quarterly profit of PKR 21.9b. Rising trend in trade debts has been a concern, nevertheless, ratings draw comfort from the fact that mostly receivables are related to circular debt, which are backed by Government of Pakistan, with very low credit risk. In addition to this, a sizeable retail sales proportion provides support to the liquidity profile of the Company. Capitalization profile reflects increased short-term borrowings in FY23 for working capital, resulting in a deterioration in gearing and leverage ratios. However, short term borrowings are on account of circular debt only. Going forward, resolution of circular debt remains important.

For further information on this ratings announcement, please contact Mr. Shaheryar Khan at 021-35311861-64 (Ext. 209) and/or the undersigned at 021-35311861-64 (Ext. 207) or email at .

Sara Ahmed

Applicable Rating Criteria: Industrial Corporates

VIS Issue/Issuer Rating Scale

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .