The Pakistan Credit Rating Agency Limited
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Hamza Ghalib

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PACRA Maintains Entity Ratings of Attock Refinery Limited

Rating Type Entity
(30-May-19 )
(07-Dec-18 )
Action Maintain Maintain
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect ARL's very strong risk absorption capacity emanating from sizable equity base. ARL's core business remains exposed to the vicissitudes in international crude oil, which in turn, may lead to declining gross refining margins (GRMs). The volatility in the oil prices coupled with deep depreciation in Pak Rupee against dollar led to negative profitability. Gross Refining Margins (GRMs) were also negatively impacted because of the reverse delta between crude oil price and petroleum products especially MS. The recent trend is reflecting a positive relationship, which will augur well for the company. There is a significant contribution from value-added products in ARL’s revenue. Post completion of expansion project along with DHDS and isomerization plant, the company is continuously enjoying benefits in sales volume as well as price, except FO which came into limelight due to Government unannounced closure of FO based power plants. Incremental benefits could not be reaped in terms of profitability, emanating from squeezed margins and steep rupee devaluation. Free Cashflows from operations has declined, in turn, coverages, but in the longer horizon, it will remain in the comfort zone. ARL's strategic investments and sizable bank placements, continue to provide support in the form of dividend and interest income, which is ~2.5% of the top-line, to the risk profile of the company and remains a stable source of recurring non-core Income. The Company’s association with the country's only integrated oil group - Attock Group (AG) - remains a source of comfort for the ratings.
The ratings remain dependent on ARL's ability to effectively shield its business profile from volatility in international oil prices. ARL's financial profile, in turn, its ratings, could be negatively impacted by the persistent downturn in refining margins, or an unexpected drop in dividend stream. The continuity of deemed duty on Diesel is crucial.

About the Entity
Attock Refinery Limited (ARL) is principally engaged in the refining of crude oil. The company primarily produces LPG, premium motor gasoline, jet fuels, kerosene, high-speed diesel, light diesel oil, furnace fuel oil, Mineral Turpentine oil, Jute batching oil, solvent oil and various grades of bitumen.AG, through Attock Oil Company (~61%) and its group company Attock Petroleum Limited (~APL) (2%) retains the majority stake (~63%), and management control in ARL. Other major shareholders comprise a) Individuals (~16.25%), b) Banks and other Financial Institutions (~10.37%), c) Mutual funds (~2.08%), d) Foreign Investors (~2.05%), e) Joint Stock Companies (~2.7%), and Others (~3.5%). ARL's Board of Directors comprises seven members. Board consists of five non-executive members and two independent non-executive directors. The Chairman of the BoD, Mr. Shuaib A. Malik, is also CEO of Attock Oil Group. A. F. Fergusons & Co. Chartered Accountants, a member firm of the PwC network, is the auditor of the company, they have expressed an unqualified opinion on ARL’s financial statements for FY18. Because of the listing status, financial transparency is considered strong as the company has to comply with the disclosures requirements of the regulators. Mr. Adil Khattak, the CEO, has extensive experience in the petroleum sector. He is supported by an experienced management team which has demonstrated stability over time. During FY17, ARL had completed the following projects a) Pre-Flash Unit - to enhance refining capacity by 10,400 bpd. b) Isomerization Unit - to enhance the production of PMG; c) The Diesel Hydro Desulphurization (DHDS) - to reduce Sulphur content in diesel d) Expansion of existing captive power plant by 18 Mega Watt.

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.