Final PR
The Pakistan Credit Rating Agency Limited

Rai Umar Zafar

Aman Zafar

Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]

Related Research

  • Sector Study | Oil and Gas (Oct 16) [View]
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PACRA Maintains Entity Ratings of National Refinery Limited
 Rating Type Entity
 Action. Maintain Maintain
 Long Term AA+ AA+
 Short Term A1+ A1+
 Outlook Stable Stable
 Rating Watch - -

The ratings reflect NRL's strong financial profile emanating from sound cashflows and healthy liquidity. NRL possesses dominating position in the domestic high margin lube segment alongwith established relationships. Strengthening of international LBO market fundamentals bodes well for the company's lube segment performance. The fuel segment showed increased performance on account of favorable international crude prices benefiting GRMs. NRL has embarked upon value added projects to reinvigorate high margin products through ISOM and DHDS. NRL has injected major CAPEX in the projects through internally generated funds. Currently, both projects are almost complete and to be commissioned. The expected leverage may not reach the envisaged proportion, further supporting the ratings. NRL's association with the country's only integrated oil group - Attock Group (AG), which on a net basis remains low leveraged - remains a source of comfort.

The ratings could be impacted by external factors such as prolonged downturn in margins and adverse regulatory changes. The company's ability to maintain its leading position in the lube segment to avoid stress on cash flows remains important for the ratings. Meanwhile, it is crucial that the company maintains its seamless financial profile.
About the Entity
With a refining capacity of 2.8mln tpa, NRL, the third largest refinery in the country was incorporated in 1963 and privatized in 2005. AG through its group companies retains the majority stake (51%) in NRL. Other major shareholders include: Islamic Development Bank (15%), NIT's funds (4%) and State Life Insurance Company of Pakistan (4%). NRL's seven member Board of Directors includes four representatives of AG. The remaining three members are independent directors including one nominee representing IDB, one nominee of NIT & one minority shareholder.

The CEO, Mr. Shuaib A. Malik, a seasoned professional in the oil business is supported by a team of experienced professionals.

NRL has completed its up-gradation projects aimed at enrichment of its product slate has been commissioned during Jun17. These projects comprises; (a) HSD Desulphurization Project: enabling the company to produce Euro II compliant HSD b) Naphtha Isomerization Project: Resulting in reducing the quantity of Naphtha.

The financial close for the financing of these projects was achieved last year. The financing of PKR 24bln under the debt to equity ratio of 65:35 was planned for a period of 12 years, with a grace period of two years at a rate of 6M Kibor + 170bps. Currently almost complete project cost has been met through internally generated funds supported by the improvement in refinery’s performance. The management does not plans to utilize any significant debt for these projects. The company currently has a negligible borrowing on its balance sheet

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.