PACRA maintains entity ratings of Gas & Oil Pakistan Limited | Assigns RW

Pakistan heavily depends on imports for its energy requirements due to limited domestic POL production. A substantial increase in POL import costs was witnessed due to global challenges. This along with rupee depreciation further impacted the local overall cost structure. During FY23, the demand for POL products declined by ~15% due to macroeconomic pressures. Transportation and Power sectors remain the main consumers, accounting for ~89% of the total demand. Despite having fixed margins, OMCs bears the impact of high working capital costs, which have risen sharply due to the aforementioned factors. There is a need to remain vigilant over short to medium term.
Gas & Oil Pakistan Limited's (“GO” or “the Company”) ratings reflect the huge network of retail outlets (~1,190 stations, including ~40 company owned and operated (COCO) sites) in private sector. Additionally, the Company houses one of the largest storage capacities ~205,000 MTs - and enjoys income from hospitality services. Sponsor's extensive industry related knowhow played well for the Company. GO is engaged in the POL procurement from local and international market, along with storage, distribution and marketing of petroleum products and lubricants. During CY23, the Company's revenue declining by ~26% due to a significant drop in volumetric sales. The Company had difficulty in inventory procurement; due to working capital related challenges. The financial institutions have become highly precautionary, while lending to government provides huge competitive returns. On the financial risk side, the position was impacted due to muted coverages and a highly leveraged capital structure so as to support the inflated working capital requirements. This pressure needs to be alleviated.
Cognizant of this, the Company has made a strategic move to bring in Aramco as a strategic partner in the local OMC arena. This may shape new dynamics for the OMC industry, in general, and for the Company, in particular. Aramco is expected to acquire ~40% stake in the Company against a consideration of PKR 20bln. From this, PKR 10bln will fall on the Company's balance sheet through a right issue. Moreover, Aramco will have prescence on the BoD and key management. The Sponsors believe that this initiative would settle the supply chain constraints and financial challenges the Company is currently facing. However, timely materialization of said inititiative is imperative. Any delay would impact the overall financial health of the Company, translating in the ratings.
The ratings are dependent on the Company's ability to improve its overall business operations. The Company must preserve its financial metrics. However, successful and timely completion of the transaction with Aramco remains pivotal to ratings.

About the Entity
Gas & Oil Pakistan Limited ('GO' or 'the Company') was incorporated as a private limited company in 2012 under the repealed Companies Act 2017. The Company is engaged in GO is engaged in the POL procurement from local and international market, along with storage, distribution and marketing of petroleum products and lubricants. The Company holds a market share of ~5%. GO has a retail network of ~1,190 stations with a storage capacity of ~ 205,000 MT.
At present, the Company's stakes reside with the sponsoring family; where, Mr. Khalid Riaz holds majority stake (~68%). Mr. Tariq Kirmani chairs the BoD. While, Mr. Khalid heads the Company as the CEO. He is aided by an experienced team. Going forward, Aramco is expacted to acquire ~40% stake in the Company. The BoD and management's compositon is also expected to change.