KARACHI: Hascol Petroleum Ltd said on Wednesday its board has approved a plan for rehabilitating the company through restructuring and settlement of liabilities.

The oil marketing company has been in financial trouble since 2018. Its revenues have plummeted, losses risen and loans skyrocketed, sending its share price down from over Rs300 four years ago to less than Rs7 apiece now.

The oil marketing firm told its shareholders its board has also approved the draft of a letter that’ll be sent to all creditors, banks and financial institutions conveying the management-prepared rehabilitation plan. The letter will also contain the process that the company intends to follow through a scheme of arrangement to be presented to the Sindh High Court.

The scheme will be subject to approval by creditors and shareholders as well as the sanction by the court, it added.

At the end of 2021, the company had claimed it was about to conclude negotiations with its bankers to address its “heavy burden of accumulated debt”.

The restructuring effort is focused on replacing short-term expensive debt with long-term affordable debt as well as some new equity.

Its net loss amounted to Rs7.57 billion for calendar year 2021 versus a net loss of Rs23.54bn in 2020. The company also discovered last year “inaccurate entries in its 2019 accounts” and subsequently restated its results from 2018 through 2020.

Regulatory actions against the company in Khyber Pakhtunkhwa for unauthorised storage and selling of petroleum products marred its reputation last year. The company also attracted unfavourable attention from investors after a series of abrupt resignations by auditors as well as members of its board and senior management came to the fore last year.

As part of its plan to regain financial strength, the company is trying to convince banks to “partially convert their outstanding debt into equity” in order to reduce its “onerous debt service obligations”.

Besides, the management is looking for a “significant reduction” in its operating costs, recapturing its market share, disposal of non-core assets, shoring up of working capital and the raising of additional equity to reduce leverage.

The company’s major shareholder is Vitol Group, which increased its equity stake from 25pc to 40pc in 2020.

The company hasn’t released its detailed financial accounts for 2021. Its short-term borrowings alone amounted to Rs33bn in 2020, down 10.7pc from the preceding year. According to the notes attached to the 2020 financial statements, these short-term loans from different banks were at interest rates ranging from one-month Karachi interbank offered rate (Kibor) plus 1.5pc to as high as Kibor plus 20pc.

In a separate statement released earlier this week, Hascol Petroleum Ltd said the company posted positive earnings before interest, taxes, depreciation and amortisation (EBITDA) of Rs1.35bn in 2021 versus a negative EBITDA of Rs11.7bn a year ago — a feat that the oil marketer attributed to the credit support to Vitol in the midst of “non-availability of capital lines from banks”.

“The company’s board and management very much hope that over the next few months Hascol Petroleum Ltd will be put on a sound footing for the years ahead,” it added.

Published in Dawn, August 25th, 2022

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