PACRA upgrades entity ratings of Pakistan Refinery Limited to ‘A’

June 11, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has updated the entity ratings of Pakistan Refinery Limited (PSX: PRL) from "A-" to "A" for the long-term and "A1" for the short-term with a stable outlook forecast.

The Ratings of PRL draws comfort not only from its association with the state-owned petroleum corporation; Pakistan State Oil (PSO) but also from the fact that a considerable portion of country’s petroleum demand is met through the company.

The industry is in dire need of technological upgradation for the same reason, Pakistan Oil Refining Policy for Upgradation of Existing / Brownfield Refineries 2023 has been announced by the Government of Pakistan (GoP) in which incentives are offered for the existing refineries to upgrade and produce environmentally friendly EURO V compliant MS and HSD while cutting down Furnace Oil production.

These incentives will be available once the Final Investment Decision (FID) is made.

In line with the Country’s need the company has announced the Refinery Expansion and Upgrade Project (REUP) which will double the refinery’s crude processing capacity from 50,000 barrels per day to 100,000 barrels per day.

Work on Front-End Engineering Design (FEED) of REUP is progressing and is targeted to be completed by September 2024, this will follow by the finalization of the Engineering, Procurement and Construction (EPC) Contract and Financial Close.

The company is also in process of identifying potential investor for the project. The proposed incentives in the refinery policy plays a pivotal role in completion of the REUP.

PRL's core business remains exposed to the vicissitudes in international crude oil and products prices, which in turn, steer the gross refining margins (GRMs) of the company.

Spreads between prices of petroleum products and crude oil remained favorable during the period resulting in better margins which was translated into improved performance. During 9MFY24 Gross Profit reported to be Rs12.942bn (9MFY23: Rs6.174bn).

The profit after tax of the Company during 9MFY24 reported to Rs5.269bn (9MFY23: Rs2.531bn).

The company has undergone major turnaround spanning over 38 days in the 3QFY24, resultantly the company suffered a loss of Rs1.2bn as compared to a profit of Rs1.77bn in the comparative period.

The company reliance on short term financing during the period remains moderate to manage its working capital needs.

Going forward leveraging indicators are expected to rise due to the project-related loan that the company will undertake for its upgradation project.

The ratings are reflective of the resilient business profile of Pakistan Refinery Limited (PRL) emanating from its sustainable operational history and its strategic importance in the domestic context.

The Ratings are dependent upon PRL's ability to effectively shield its business profile from external vulnerabilities.

Revived performance indicators and a prudent financial matrix are imperative to uphold the ratings.

Furthermore the ratings take comfort form the refinery policy which will provide support to the REUP and contribute towards the sustainability of operations.

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