March 28, 2019 (MLN): VIS Credit Rating Company Limited (VIS) has upgraded the entity ratings of Al-Makkah Oil Refinery Limited (AOL) from ‘BBB-/A-2’ to ‘BBB/A-2’. Outlook on the assigned ratings is ‘Stable’.
The assigned ratings draw comfort from the commitment that no long term debt would be undertaken by the company and short term borrowings & trade payables in relation to net sales would be maintained at prudent levels over the rating horizon. Given tax credit and low financial charges, cash flows are expected to remain a function of gross margins. Nevertheless, corporate governance framework and internal control systems have room for improvement.
Ratings continue to derive strength from established track record of sponsors in the edible oil business and favorable demand prospects for edible oil in the domestic market.
Going forward, ratings are dependent upon improving trend in gross margins and leverage indicators. Any deviation from communicated rating benchmarks would impact the ratings.
