The Pakistan Credit Rating Agency Limited
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Wajahat Arjumand Ansari

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PACRA Assigns Preliminary Rating to OILCO Petroleum (Pvt.) Limited | PP Sukuk

Rating Type Debt Instrument
Action Preliminary
Long Term A+
Short Term -
Outlook Stable
Rating Watch -

The Sponsors of Halmore, 225MW combined cycle power plant (A+, rated by PACRA) operating since 2011, have joined hands with owners of OILCO Petroleum (Pvt.) Limited (OILCO) to promote and grow the business of OILCO in Pakistan. OILCO incorporated in 2013, is engaged in the business of marketing of petroleum products and lubricating oils. The Company has sizeable storage capacity available at its disposal. Under the patronage of primarily Halmore sponsors and also other shareholding group, SEARS Energy DMCC has been established as a energy trading company in Dubai. SEARS Energy, would act as a supplier of petroleum products to OILCO. The sponsors have an experience of more than two decades in the energy sector, enabling them to establish relationships with suppliers and customers. Currently, it has over 55 retail outlets and aims to aggressively penetrate the retail segment in the growing industry. The Company plans to finance the capex through debt and equity (50:50). Currently, OILCO has adequate financial risk profile. The ratings take comfort from the commitment of sponsors to inject phase wise equity in order to fund growth plans.
The rating takes into account the strong and tiered security structure embedded within the sukuk. The security structure includes debt service reserve account (DSRA) and a debt payment account (DPA) which ensures timely compliance with the repayment schedule, as the Company shall be obliged to transfer the disbursed amount by the 25th of every third month. Further, a corporate guarantee by Halmore Power Generation Company Limited shall provide a cushion to the pre-default mechanism of the debt instrument. The ratings remain dependent on OILCO’s ability to achieve desired market penetration along supportive supply chain network and healthy margins.

About the Entity
OILCO Petroleum (Pvt.) Limited (OILCO) incorporated in 2013, was granted license to establish as Oil Marketing Company in 2017. OILCO started its operation in Punjab region with a network of ~ 55 retail outlets (end Jun-21), OILCO has storage infrastructure of ~ 28,000MTs. The Company is a subsidiary of SEARS Energy DMCC. SEARS Energy is joint venture by the Halmore Group and Mr. Ahsan Majeed with a 66.6% and 33.3% stake, respectively. The control of the Company vests with a seven-member Board of Directors (BoD) including the CEO. All of the board members are experienced professionals with diversified backgrounds. The CEO is supported by an able and competent team.

About the Instrument
OILCO Petroleum (Pvt.) Limited intends to issue a secured, rated, with the option of privately placed, sukuk of PKR 750mln (inclusive of PKR 250mln green shoe option), at an offer rate of 3 Month KIBOR Offer Rate + 300bps p.a with a tenor of four (4) years, inclusive of 1 year grace period. A tiered security structure has been embedded within the instrument comprising of debt service reserve account, debt payment account in its pre-default mechanism, whereas a pari-passu hypothecation charge over present and future assets, an equitable mortgage over industrial/agricultural property and an exclusive charge/lien & right of setoff over facility accounts in the post-default mechanism. Sukuk will be redeemed in twelve (12) equal quarterly payments.

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.