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PACRA Maintains Entity Ratings of Pak Arab Refinery Limited

Rating Type Entity
(10-Dec-20 )
(10-Dec-19 )
Action Maintain Maintain
Long Term AAA AAA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

Rating incorporates the company's strategic importance to economy through its operations extended to, transportation of petroleum products through integrated Pipelines, Refining, and Marketing, providing efficient, low-cost, and 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. Volatility in International Oil prices remained as one of the key challenges along with adversities of COVID-19 Pandemic. The ratings, however, recognize PARCO’s aptness and timeliness in subduing challenges on its financial risk profile. Company investments in dollar based TDR cover its financial risk profile to a maximum level and also acts as an implied hedge against exchange rate fluctuations. In 3MFY21, the Company earned a net profit of ~PKR 3.2bln supported by dividend income from subsidiaries and joint venture company. Moreover, return on investments also reflected positively on the company’s performance. The ratings take into account PARCO’s strengthened position in midstream and downstream sector resulting through acquisitions and completion of expansion projects. The company went through a capacity enhancement phase taking the optimum capacity level from100,000 barrels per day (bpd) to 120,000 bpd, however this expansion is expected to start paying off in near future as the country wide lockdown situation has eased out. 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, consistency in Government policies and technological improvisation will 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 (EAD) through its investment arm, Abu Dhabi Petroleum Investments LLC (ADPI). 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 the OMV representative. The Managing Director, Mr. Shahid Mahmood Khan, has been associated with the Company for over 10 years 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.