September 2, 2019: VIS Credit Rating Company Limited has assigned preliminary rating of A-1 to Hascol Petroleum Limited’s (HASCOL) proposed privately placed and unsecured Islamic Commercial Paper (ICP) of up to Rs. 3 billion (inclusive of Green Shoe Option of Rs. 1,000 million), having a tenor of up to three months.
HASCOL plans to raise up to Rs. 3 billion through an ICP issue to fund working capital requirement. The commercial paper will be issued in 6 tranches each of Rs. 500 million on bi-monthly basis and will have a rental rate of KIBOR plus 200 bps.
VIS had maintained the entity ratings of HPL at AA-/A-1 on April 24, 2019. Outlook on the assigned ratings is ‘Negative’ given weakening in OMC industry dynamics as reflected by sizeable dip in industry volumes and increasing competition.
The assigned entity ratings take into account Company’s prominent position in the Oil Marketing Sector. Overall market share has declined in recent months but remains sizeable and was recorded at 10.4% (FY18: 11.9%) during FY19. Decline in market share has been more pronounced in retail fuels and is partly attributable to implementation of a revised credit policy to limit increase in finance cost given high interest rate environment.
Moreover, lower market share is also due to focus on limiting exchange losses in the backdrop of significant fluctuation in currency movements. Given the company’s investment in infrastructure, VIS expects HPL to sustain its market position over the long-term.
Ratings draw strength from strategic investment of Vitol Dubai Limited (VDL) in HPL, a significant international player in the oil sector. Recently, VDL has provided financing facilities to the tune of $42million to HPL.
HASCOL’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.
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