Press Release

VIS Maintains Ratings of Hascol Petroleum Limited
 

Karachi, April 24, 2019: VIS Credit Rating Company Ltd. (VIS) has maintained the entity ratings of Hascol Petroleum Limited (HPL) at ‘AA-/A-1’ (Double A Minus/A-One). Rating of HPL’s secured Sukuk issue of Rs. 2billion has also been maintained at ‘AA’ (Double A). Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Negative’. The previous rating action was announced on November 01, 2017.

The assigned ratings incorporate Company’s position as the second largest Oil Marketing Company in Pakistan with overall market share increasing on a timeline basis in 2018. Ratings draw comfort from strategic investment of Vitol Dubai Limited in HPL, a significant international player in the oil sector. Moreover, company’s diversification initiatives (Lubricants, LPG, Specialized Fuels/Chemicals and LNG) and significant investment in infrastructure (both storage and retail pumps) will be a source of competitive advantage for HPL vis-à-vis other OMCs and will allow it to sustain its market position over the long-term. Revision in rating outlook reflects weakening in OMC industry dynamics as reflected by dip in industry volumes and reliance on imports resulting in exposure to currency fluctuation in the back drop of pressure on external front. Ratings remain dependent on reduction in currently high leverage indicators and improving cash flow coverage of outstanding debt.

Industry oil sales volumes decreased by 27% in 9MFY19 primarily on account of decrease in sales of Furnace Oil (FO) and High Speed Diesel (HSD) while Motor Gasoline (MOGAS) sales increased by 1%. HPL is the second largest OMC in the country with a market share of around 12.7% in total OMC volumes in 2018. However, market share in retail fuels, particularly MOGAS, has declined in recent months. This is partly attributable to a deliberate strategy of managing exchange rate risk.

Assessment of financial risk profile incorporates elevated leverage indicators and lower cash flow coverage of outstanding debt. In order to fund expansion, HPL incurred sizeable capital expenditure during CY17 and CY18. The capital expenditure has been primarily financed through acquisition of additional debt with some funding undertaken through a rights issue in 2017. Sizeable debt funded capital expenditure and lower cash flow generation has resulted in pressure on liquidity profile. Slowdown in capital expenditure, improvement in working capital management and cost controls besides diversification into newer product segments are key focus areas.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at (021)35311861-70 or Mr. Jamal Abbas Zaidi (Ext: 207) or fax to (021)35311872-3.


Javed Callea
Advisor

Applicable Rating Criteria:
Oil & Gas Industry (November 2016) http://www.jcrvis.com.pk/docs/Meth-OilGas201611.pdf
Industrial Corporates (May 2016) http://www.jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf

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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 not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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