Press Release

VIS Reaffirms Entity Ratings of Pakistan State Oil Company Limited

Karachi, December 12, 2024: VIS Credit Rating Company Limited (‘VIS’) has reaffirmed the entity ratings of Pakistan State Oil Company Limited (‘PSO’ or ‘the Company’) at 'AA+/A1+' (‘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 'A1+' suggests strongest likelihood of timely repayment of short-term obligations with outstanding liquidity factors. Outlook on the assigned ratings remains ‘Stable’. Previous ratings action was announced on January 19, 2024.

PSO, incorporated in Pakistan in 1976 and listed on the Pakistan Stock Exchange, operates as the largest oil marketing company in the country. Its core activities include the procurement, storage, and marketing of petroleum and other products, alongside blending and marketing lubricants. The Government of Pakistan holds a 51% controlling interest, appointing the Board of Management and Managing Director. PSO's investments include strategic stakes in Asia Petroleum Limited (49%) Pakistan Refinery Limited (63.56%), and others The company’s vertically integrated supply chain infrastructure underpins its market positioning and operational risk management.

Assigned ratings consider the business risk profile of the Company which is shaped by its operations in the petroleum products marketing and lubricant sectors. The petroleum products marketing sector faces high business risk due to regulatory oversight, macroeconomic challenges, and exposure to currency volatility. Competition within the sector necessitates substantial capital outlays, while delays in payment mechanisms and pricing adjustments add to the risk. The lubricant sector exhibits medium business risk, with stable demand drivers and exposure to economic conditions. Challenges stem from exchange rate volatility andhigh competition, alongside risks related to counterfeit products. Ratings are supported by PSO’s status as a state-owned entity, government guarantees associated with its receivables and payables, and its importance as a strategic national asset.

Assigned ratings also incorporate the financial risk profile of the Company. The profitability profile reflects improvement in gross and net margins, supported by increased selling prices and income from financial assets. Liquidity metrics and coverage profiles have demonstrated resilience, benefiting from improved cash flow generation and reduced tax obligations. However, exposure to circular debt presents a challenge for which PSO is actively engaged with concerned authorities. Capitalization indicators show improvement, with growth in equity and reduced leverage levels. The absence of any significant planned CAPEX, apart from routine retail and operational investments funded through internal cash generation, supports the capitalization profile.

Going forward, the ratings remain sensitive to the Company’s ability to address circular debt challenges and improve recovery mechanisms for LNG-related costs. Profitability will depend on maintaining competitive market positioning and achieving diversification through subsidiaries. Continued improvement in capitalization, coverage, and liquidity metrics will also remain key ratings considerations.

For further information on this ratings announcement, please contact on 021-35311861-64 or email at info@vis.com.pk.




Applicable Rating Criteria:
Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
Government Supported Entities
https://docs.vis.com.pk/docs/Meth-GSEs202007.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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 .