June 2, 2020: Pakistan Credit Rating Agency (PACRA) has maintained entity ratings of National Refinery Limited (NRL) at ‘AA+’ for long-term and ‘A1+’ for short-term with a ‘negative’ outlook forecast.
The ratings reflect NRL’s association with the integrated oil group – Attock Group (AG).
The strength of the company is its base oil business wherein NRL possesses a notable share in meeting the economy's demand for lubricants.
NRL's core business remains exposed to the vicissitudes in international crude and petroleum products’ (POL) prices, which in turn, steer the gross refining margins (GRMs) of the company.
The country’s refinery sector has been going through significant challenges for an extended period, majorly pertaining to upgradation of the refining complexes and management of furnace oil (FO) produce.
The FO offtake has further obstacles on the export avenue as IMO 2020 came into play, since Jan’20. Depressed crude and POL prices in the International market coupled with the underlying issues of the sector had hampered the performance indicators of the industry players in FY19.
Adding to the woes, the global oil market was further struck by widespread uncertainty due to the outbreak of the COVID-19 pandemic. This severely weakened the International Oil dynamics, creating a manifold impact on the domestic economy as well as the local refinery industry.
Inventory accumulation, NRV adjustments and POL demand slide pressurized the GRMs and profitability margins of the sector players drastically. Nonetheless, the concerns are expected to reverse, going forward, as global prices move towards a stabilized trajectory and demand takes a gradual uptick, on account of ease in lockdown.
Having said this, uncertainty still prevails as to the timeliness of complete restoration and recovery of losses that the Industry has absorbed, under the current situation. Likewise, NRL’s financial risk profile exhibited a tightened position with persistent bottom-line losses, increased short term funding to cater working capital needs and reduced equity.
The outlook of the ratings reflects on the same and captures the need to regain improved results in due course of time. Meanwhile, the company’s utilization of FO as feed for the lube’s domain is considered positive in tackling the FO offtake challenge.
The ratings are dependent upon NRL's ability to effectively shield its business profile from external vulnerabilities. Revived performance indicators and prudent financial matrix are imperative to uphold the ratings.