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The Pakistan Credit Rating Agency Limited

Date
17-Oct-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Ahmed Sheikh
ahmed.sheikh@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Debt Instruments Rating Methodology (Jun 17) [View]
  • Corporate Rating Methodology (Jul 17) [View]

Related Research

  • Sector Study | Oil Marketing Companies (Jun 17) [View]
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PACRA Assigns Initial Ratings to Gas & Oil Pakistan (Pvt.) Limited
 Rating Type Entity Debt Instrument
Current
(17-Oct-2017)
Current
(17-Oct-2017)
 Action Initial Preliminary
 Long Term A A
 Short Term A1
 -
 Outlook Stable Stable
 Rating Watch - -

The ratings incorporate Gas & Oil Pakistan (Pvt.) Limited’s (GO) growing presence in the oil marketing company (OMC) segment. The company has successfully attained over 3% market share, in a competitive market, over three years of operations and has ~ 300 retail outlets. The company plans to aggressively penetrate the retail segment in the growing industry by targeting expansion across semi-urban and rural areas as urban market is highly competitive. GO capitalizes on strong managerial support from its sponsors who have significant knowledge in oil procurement and distribution segment. The ratings drive strength from well-structured organisation and experienced management team. The company is in the midst of large scale capex programme to increase its storage capacity in order to support its expansion initiatives. The company plans to finance the capex through debt issue and public offering (IPO). Currently, GO has healthy financial risk profile reflected by low leveraging and strong coverage indicators. The debt driven expansion would enhance the overall leveraging though remaining at a comfortable level.

The rating particularly recognizes on going developments to improve its overall governance framework including i) planned listing – significantly improving transparency ii) induction of a diverse, independent set of individuals as board members iii) quality external auditors and iv) adoption of a conservative financial matrix. In addition to timely implementation of these initiatives, the ratings are dependent on GO’s ability to achieve desired market penetration along supportive supply chain network and healthy margins.
About the Entity
Gas & Oil Pakistan (Pvt.) Limited (GO) incorporated in 2012, was granted license to establish as Oil Marketing Company in 2012. GO started its operation in 2014 in Punjab region later expanding its sales and marketing network to Sindh in 2016. With a network of ~ 300 retail outlets (end Sep-17), GO has storage infrastructure of ~ 34,400 MTs spread all across the country. The company is primarily owned by four individuals. Mr. Khalid Riaz has 49% stake in the company followed by Mr. Farhan Abbas Sheikh (who is also the CEO) and Mr. Shehzad Mubeen who has 20% stake, each, and Mr. Bilal Ansari with 10% stake.

The Company recently restructured its board. The new board of GO comprises nine experienced professionals. Four members are independent. All of the board members are experienced professionals with diversified backgrounds. The CEO is supported by an able and competitive team.

About the Instrument
GO plans to issue a short-term privately-placed unsecured and subordinated Commercial Paper (CP) of PKR 1 billion shortly to finance its working capital requirements. CP will be issued in the form of promissory notes at a discount to face value. It will be redeemed at face value on the maturity date, 270 days (9-M) from the issue date. The instrument carries profit at the rate of 6 month KIBOR + 1.15% p.a.
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.
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