December 11, 2019 (MLN): Pakistan Credit Rating Agency has maintained the Entity Ratings of Pakistan Refinery Limited (PRL) at ‘A-’ for long-term and ‘A2’ for the short-term. The outlook assigned is ‘Stable’.
The ratings reflect the resilient business profile of the company emanating from its sustainable operational history and its strategic importance in the domestic context. PRL's core business remains exposed to the vicissitudes in international crude oil and product prices, which in turn, steer the Gross Refining Margins (GRMs) of the company.
During FY19, volatile oil prices coupled with a sharp rupee depreciation emerged as one of the key challenges to PRL and the Refinery Sector as a whole. Resultantly, overall refinery margins remained under pressure hampering the profitability of the sector. PRL margins are also impacted on account of low HSD price, due to the non-installation of the DHDS Unit for producing Euro-II compliant Diesel.
Another major issue encountered in the Refining Sector was the declining demand for Furnace Oil (FO), as the Government took steps to shift the power sector needs to alternate fuels like LNG and coal. The recent trend, however, is reflecting a revival, as is evident from a much stable rupee and favorable FO prices. This is expected to augur well for the company.
The Premium Motor Gasoline (PMG) and crude oil negative delta, which also played a role, has now reversed. With PSO as the main sponsor on the back and expected stability on the macro-front, PRL now embarks on upgradation projects in their refinery complex, being at a very preliminary stage, as of today. This is expected to pitch benefits for the company when materialized.
The ratings are dependent on improved performance indicators, particularly refining and net margins. Adequacy of cash flows viz-a-viz debt servicing remains critical for the ratings. Meanwhile, prudent financial discipline amidst new funding needs is imperative.