The Pakistan Credit Rating Agency Limited
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Saadat Mirza

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PACRA Maintains Entity Ratings of Pak Arab Refinery Limited

Rating Type Entity
(10-Dec-19 )
(10-Jun-19 )
Action Maintain Maintain
Long Term AAA AAA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect PARCO’s ownership structure - owned by the Government of Pakistan (GoP) (60%) and Emirates of Abu Dhabi (EAD), through Abu Dhabi Petroleum Investments LLC (40%), a majority owned company of Mubadala. The company is of strategic importance to Pakistan as it operates as an integrated Pipeline, Refinery, and Marketing infrastructure, providing efficient, low-cost, environment-friendly energy solutions. PARCO is also contributing substantially towards socio-economic benefits and Foreign Exchange savings; its low business risk emanates from its leading market position, strong demand of its products and its advanced Refinery Complex technology. During FY19, volatility in International Oil prices coupled with a sharp rupee depreciation emerged as one of the key challenges to the Refinery Sector. The ratings, however, recognize PARCO’s aptness and timeliness in subduing challenges on its financial risk profile. Dividend income from subsidiaries and joint venture companies reflect positively on the company’s performance. Moreover, strong foreign currency investment returns provide an implied hedge against exchange risk. The ratings also incorporate PARCO’s strengthened position in midstream and downstream sector resulting through acquisitions and completion of expansion projects. Market share, though marginally lower in FY19, is expected to remain strong as PARCO enhances its operating capacity from 100,000 barrels per day (bpd) to 120,000 bpd by Jun'20. Additionally, PARCO also embarks on setting a new state-of-the-art 250,000 bpd Coastal Refinery Project which is at a preliminary stage. Strong capital structure and sizable equity has, historically, enabled the company to absorb hefty capital expenditures.
Effective management of upcoming projects, favorable Regulatory Regime, and consistency in Government policies remain critical for the ratings. Meanwhile, sustained competitive positioning is also imperative.

About the Entity
Established in 1974, Pak-Arab Refinery Ltd (PARCO) is a 60:40 joint venture between the Government of Pakistan and Emirates of Abu Dhabi through its investment arm, Abu Dhabi Petroleum Investments. PARCO started out as a pipeline company. With capacity enhancements and network expansion, the network consists of ~2000 km long cross-country oil and finished product pipeline, by the name of Pak Arab Pipeline Company Limited (PAPCO) - a joint venture between PARCO, PSO, Shell, and Total PARCO Marketing Limited. PARCO also has major investments in marketing operations which include: Total PARCO Pakistan Limited - a joint venture in a rapidly expanding retail fuel/lubricants network and PARCO Pearl Gas (Private) Limited - one of the largest LPG marketing/distribution company. PARCO is also engaged in the direct supply of oil products to industrial customers and the Armed Forces through the Pearl brand. PARCO’s equity investment (direct or indirect) in its related business is as follows; a) PAPCO - 62%; b) PARCO Pearl Gas (Private) Limited - 100%; c) Total PARCO Marketing Limited - 100%, d) Total PARCO Pakistan Limited - 50%, and e) PARCO Coastal Refinery Limited - 100%. The company’s ten-member Board of Directors (BoD) includes six nominees of the GoP, including the Chairman and the Managing Director (MD), while the remaining four are EAD nominees, one of whom is an OMV representative. The Managing Director, Mr. Tariq Rizavi, has been associated with the company since the beginning of his career and is supported by a team of qualified and experienced professionals.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.