Karachi, November 02, 2016: JCR-VIS Credit Rating Company Ltd. (JCR-VIS) has reaffirmed the entity ratings of Hascol Petroleum Limited (HPL) at ‘A+/A-1’ (Single A Plus/A-One). Rating of HPL’s secured Sukuk issue of Rs. 2billion has also been reaffirmed at AA- (Double A Minus).Outlook on the assigned ratings is ‘Stable’. The previous rating action for entity ratings was announced on July 07, 2015 while Sukuk rating was finalized on January 08, 2016.
The ratings assigned to HPL reflect its growing market share, adequate financial risk profile and improving corporate governance framework. Aggressive market share acquisition strategy is planned to continue with HPL targeting to become the second largest player in the sector with a 15% market share by 2020. Moreover, HPL has continued to pursue expansion in its storage capacities and retail outlets. While overall financial profile is adequate given healthy cash flows in relation to outstanding obligations, leverage indicators have trended upwards in order to fund aggressive expansion plans. Maintaining existing risk profile with the current growth momentum will be a key rating driver, going forward.
Rating of the Sukuk issue draws strength from financial profile and security structure of the Sukuk which entails formation of a debt payment mechanism to progressively retain upcoming installment in an escrow account. Security structure also includes first pari passu charge over specific depots and retail outlets of the company inclusive of a margin of 25%.
HPL continued to outperform the industry with sales volumes increasing at a CAGR of 61.1% over the last three years. Sales mix posted notable improvement during 2015 with proportion of high margin retail fuels now representing three-fourth of total sales. Focus on lubricant business has also been enhanced further through formation of an independent lubricant business unit headed by a competent person. Volumes in the lubricant business continue to grow with diversification in customer base while work on a new lubricant plant has commenced. Land measuring approximately 6 acres has also been acquired at Port Qasim for building the state of the art lubricant blending plant in collaboration with FUCHS-Germany. The total cost of the project is approximately PKR 1.8 billion and is expected to be completed in two years. Higher volumetric off-take along with linkage of OMC margins to CPI and growth in lubricant business is expected to bode well for company’s profitability. HPL regards its integrated supply chain strategy as a key competitive edge, the management of its complexity at increasing volumes will be tested over time.
Ratings also take into account the induction of Vitol Dubai Limited (Vitol) acquiring 15% stake in the company. Vitol group is one of the largest oil trading concerns with the group shipping oil equivalent to about 7% of world oil demand. As per management, addition of Vitol as a key shareholder in the company will facilitate the company in securing and ensuring smooth supply of petroleum products and hedging its risk. Governance infrastructure has been strengthened with the induction of qualified professionals with relevant industry experience, reorganization and streamlining of the HR function and formalization of manuals & policy framework.
The OMC market going forward is likely to face greater competition in vehicle fuel segment and would need to reposition itself in the changing energy mix of the country with the induction of coal and LNG. The efficiency of supply chain management will be a key competitive indicator for market players.
For further information on this rating announcement, please contact the undersigned (Ext: 249) or Mr. Javed Callea (Ext: 234) at (021)35311861-70 or fax to (021)35311872-3.
Jamal Abbas Zaidi
Applicable Rating Criteria: Industrial Corporates (May,2016)
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