The Pakistan Credit Rating Agency Limited
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Jibran Cheema

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PACRA Assigns Initial Entity Ratings to Byco Petroleum Pakistan Limited | Rating Watch

Rating Type Entity
(25-Aug-20 )
Action Initial
Long Term A-
Short Term A2
Outlook Stable
Rating Watch Yes

The ratings reflect the resilient business profile of Byco Petroleum Pakistan Limited (Byco) emanating from its diversified operational capability and its strategic importance in the domestic context. The company possesses a notable share in meeting the economy's demand for petroleum products, with its refinery and marketing business. Byco'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. The country’s refinery sector has been going through significant challenges for an extended period, majorly pertaining to upgradation of the refining complexes and management of furnace oil (FO) produce. Depressed crude and POL prices in the International market coupled with the underlying issues of the sector had hampered the performance indicators of the industry players in FY19. Adding to the woes, the global oil market was further struck by widespread uncertainty due to the outbreak of the COVID-19 pandemic. This severely weakened the International Oil dynamics, creating a manifold impact on the domestic economy and the demand for petroleum products. Inventory accumulation, NRV adjustments and POL demand slide pressurized the GRMs and profitability margins of the sector players drastically. The trend is expected to reverse, going forward, as global prices move towards a stabilized trajectory and demand takes a gradual uptick, on account of ease in lockdown. Having said this, uncertainty still prevails as to the timeliness of complete restoration and recovery of losses that the Industry has absorbed, under the current situation. Byco’s financial risk profile exhibits a challenging position with essential borrowings to cater working capital needs. Nonetheless, Byco stands out in embarking on a new strategic venture to upgrade its refinery process in order to cope with the key challenges prevailing in the sector. The project also encompasses installation of DHDS plant, which would make the company Euro-V compliant. Going forward, Byco may undergo changes in its ownership structure due to Abraaj Group - one of the two key sponsors, though the main shareholder is committed to continuity and extending requisite support.
The ratings are dependent upon Byco's ability to effectively shield its business profile from external vulnerabilities. Revived performance indicators and prudent financial matrix are imperative to uphold 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
Byco, 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, Byco has the highest refining capacity, in the country. Byco's marketing segment has over 390 retail outlets across Pakistan. The company is a subsidiary of Byco Industries Incorporated (BII), Mauritius, which holds 91.83% shares in the company, while the rest is listed on the PSX. BII is joint venture by Byco Busient Incorporated and Abraaj Mauritius Oil & Gas Limited with a 60% and 40% stake, respectively. The control of the company vests with a seven-member Board of Directors, including the Chairman and the CEO. Mr. Amir Abbassciy has been the Chief Executive Officer of Byco since January 1, 2017, while also serving on the Board as an executive director. He brings with him, extensive experience spanning 3 decades, in the industry.

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.