The Pakistan Credit Rating Agency Limited
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Uswa Sikandar

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PACRA Maintains Entity Ratings of Cnergyico Pk Limited

Rating Type Entity
(25-Aug-22 )
(25-Aug-21 )
Action Maintain Maintain
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes Yes

The ratings reflect the resilient business profile of Cnergyico Pk Limited (Cnergyico) emanating from its diversified operational capability and its strategic importance in the domestic context. Cnergyico possesses a notable share in meeting the economy's demand for petroleum products, with its refinery and marketing business. Significant challenge underlying the future of refinery industry in Pakistan pertains to up-gradation of the refining complexes. A new proposed oil policy is under discussion which envisages certain fiscal and tariff concessions to the refining sector that will have improved implications on the financial condition of the refineries, also enabling their up gradation. However, the final approval and actual financial impact is yet to be seen. Implementation of deregulation mechanism to set petrol prices is also likely to be included in the new oil policy and can be a land mark development for the entire sector. Cnergyico's refinery business remains exposed to the vicissitudes in international crude and petroleum products’ (POL) prices, which in turn, steer the gross refining margins (GRMs) of the Company. On the back of revival in economic dynamics and increase in GRMs due to imbalance in the global oil supply & demand situation, Cnergyico has resumed profitability in the latest quarter and booked net profit of PKR 563mln in 9MFY22 (FY21: PKR 3,596mln; FY20: PKR (2,431)mln). This trend is expected to continue in the upcoming quarters as well, however uncertainty exists regarding sustainability of GRMs’ at this level due to recent dip in oil prices in international market. Cnergyico’s financial risk profile is strained with significant reliance on sponsors’ loan. Recent devaluation in rupee has further pressurized the already squeezed up WC lines. The company is managing working capital requirements through utilization of short-term borrowings and open credit arrangements with its crude oil suppliers. Cnergyico has already embarked on a new strategic venture to upgrade its refinery processes including installation of DHDS plant. However, upgradation process is slow since management has shifted its focus to maximize throughput of refinery to cash in on lucrative GRMs offered in last couple of quarters. Resultantly the funds are diverted to maximize the throughput and upgradation has been put on hold. The key sponsoring family - Abbassciy family, is committed to ensure continuity and extending essential support.
The ratings are reflection of Cnergyico's largest capacity, efficient processes that enables the company to effectively shield its business profile from external vulnerabilities. Improved performance indicators and promising financial discipline, are imperative for the ratings. The entity has been placed on Rating Watch to oversee challenges on the business and financial risk profile of the company, amongst others, related to industry dynamics.

About the Entity
Cnergyico, incorporated in 1995, is listed on the Pakistan Stock Exchange. It is engaged in the manufacturing, production, and sale of a large range of petroleum products via its refinery and marketing segments. The refinery complex of the company comprises two refineries. With the aggregate designed capacity of ~155,000 barrels per day, Cnergyico has the highest refining capacity, in the country. The company is a subsidiary of Cnergyico Mu Incorporated (CMI) (formerly Byco Industries Incorporated (BII)), Mauritius, which currently holds 69.83% shares in the company after divestment/sale of 22% shares by IGCF Oil & Gas Limited (formerly Abraaj Mauritius Oil & Gas Limited (AMOGL)), while the rest is spread among other Financial Institutions and General Public. Mr. Amir Abbassciy has been the Chief Executive Officer of Cnergyico since January 1, 2017.

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.