logo
The Pakistan Credit Rating Agency Limited
Press Release

Date
24-May-19

Analyst
Raniya Tanawar
raniya.tanawar@pacra.com
+92-42-35869504
www.pacra.com

Applicable Criteria

Related Research

Disclaimer
This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Pak-Arab Pipeline Company Limited

Rating Type Entity
Current
(24-May-19 )
Previous
(23-Nov-18 )
Action Maintain Initial
Long Term AAA AAA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings are a reflection of PAPCO’s distinctive business model driving its strength from a tariff based return model. PAPCO operates a 786 Km pipeline network dedicated for White Oil Pipeline (WOP). The tariff follows a pre-defined structure denominated in USD$, providing sustainability to the company’s profit base. PAPCO has been operating its WOP for HSD only, at a capacity utilization of ~47% (~57% previously). Company’s envisaged expansion plan is near to completion, which is expected to enhance and further leverage the infrastructure capacity, by way of transporting MOGAS. The expansion is debt driven, wherein interest spread is very much akin to risk free rate. A level of comfort is drawn from the exclusive tariff given for the MOGAS project; all set to be operational by July’19. This will also create strategic advantage for the country. The cash flows of the company are persistently strong, providing sustainable coverages to debt repayments. The business risk is considered moderate - given current economic slowdown – indeed a relatively volatile demand of MOGAS and declining trend in HSD demand is perceived for foreseeable future, in addition to OMCs reliance on PAPCO for oil supply. The company's governance derives benefit from its association with PARCO, which also deputes its functionaries (esp. CEO) in PAPCO, with Shell Pakistan Limited nominating the CFO.
The ratings are dependent on the sustained business model and operations. Strong cash flows backs the decline in topline while enabling relevant coverages to its debt repayments is prerequisite.

About the Entity
Pak-Arab Pipeline Company Limited (PAPCO) was incorporated in 2000. PAPCO’s majority holding lies in the hands of PARCO - 51%, which is majorly owned by GoP, while remaining by Shell Pakistan Limited (26%), PSO (12%) and Total PARCO Marketing Limited (11%). PAPCO operates a cross-country pipeline system to transport refined High Speed Diesel from Karachi ports to mid-country. It has the flexibility to receive imported and locally produced HSD products from multiple sources and to deliver it at different demand centers. The pipeline was commissioned in March 2005, comprising 786 Km 26” dia cross-country pipeline, storage tanks, pumps and other allied facilities.
The Company’s overall control is overseen by ten-member board of directors (BoD), representing all the shareholders. The Chairman of the board is nominated by PARCO. Mr. Shujauddin Ahmed, Chief Executive Officer (CEO), is a qualified Engineer with more than four decades of experience in related fields. He took charge as the CEO-PAPCO in early 2017 and has been aptly deploying his expertise since then

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.