PACRA maintains the rating of Gas & Oil Pakistan Limited | PP Sukuk

The ratings reflect Gas & Oil Pakistan Limited's (GO or the Company) evolving position in the oil marketing sector. GO plans to expand its reach by targeting the retail market in semi-urban and rural areas. To support this expansion, the Company issued a privately placed sukuk worth PKR 2.5 bln on Dec-21. Lately, there has been a strategic shift in the Company's shareholding structure, where Aramco, a prominent Saudi player in the international oil market, has acquired ~40% of the stake. This transaction strengthens GO's position in the local oil marketing sector, in particular, and shapes new dynamics for the OMC industry, in general. Aramco has acquired this stake against a consideration of PKR 20bln. Out of this, PKR 10bln has fallen on the Company's balance sheet through the right issue. Moreover, Aramco now has a presence on the BoD and among key management of the Company. The Sponsors believe that this initiative would settle the supply chain constraints and financial challenges the Company was previously facing. During CY23, the Company reported revenue of ~PKR 241bln, a decrease of ~26% (CY22: ~PKR 325bln). Overall volumetric sales experienced a substantial decline of ~51%. This decline in revenue was primarily due to challenges in procuring petroleum products. Shortly, an increase in revenue is expected as the transaction with Aramco alleviates procurement challenges and improves overall operational efficiencies. During CY23, gross profits declined to ~PKR 25bln (CY22: ~PKR 31bln) due to a significant decrease in revenue. However, the gross profit margin increased to ~10.5% (CY22: ~9.5%) owing to lower procurement costs. Looking ahead, margins are expected to improve as Aramco's involvement in operations will further ease the Company's operational challenges.
The rating reflects the Company's capability to maintain its operations while executing its expansion strategy. Successfully implementing the planned business strategy and achieving sustainable profitability are crucial. Additionally, it is important to maintain strong financial metrics, including working capital ratios, coverage ratios, and capital structure.

About the Entity
Gas & Oil Pakistan Limited ('GO' or 'the Company') was incorporated as a private limited company in 2012 under the repealed Companies Act 2017. The Company is engaged in the POL procurement from local and international markets, along with storage, distribution, and marketing of petroleum products and lubricants. GO has a retail network of ~1,190 stations with a storage capacity of ~ 205,000 MT. A majority stake resides with Mr. Khalid Riaz (~51%). The rest of the shareholding vested with Mr. Shahzad Mubeen (~6%), and Mr. Bilal Ansari (~3%), and Aramco has acquired (~40%) stake in the Company. Mr. Tariq Kirmani chaired the BoD. While Mr. Khalid was heading as the CEO. He was aided by an experienced team. However, the BoD and management's composition has changed.

About the Instrument
In Dec-21, GO issued a rated, secured, privately placed sukuk with a total value of PKR 2.5 bln. The sukuk offers a rate of 3-Month KIBOR + 1.75% per annum and has a five-year tenor. Redemption of the sukuk will occur in sixteen equal quarterly installments. To ensure the upcoming coupon payments, the Debt Payment Account (DPA) is funded 100% from a designated account 30 days before each coupon payment date.