PSO Management Suggests Equity Swap to Settle Circular Debt

Staff Report.

The management of Pakistan State Oil (PSO) has suggested equity swaps to settle circular debt.

Pakistan State Oil (PSO) conducted its Corporate Briefing Session on Monday, where management discussed the financial performance and future outlook of the company.PSO Faces Rs 10.4 Billion Consolidated Losses

PSO management suggested equity swaps, as the government lacks cash, as the only solution to settle circular debt balances by swapping PSO’s receivables with GoP assets.

Management highlighted that PSO’s liquidity condition is expected to improve due to timely payment of LNG receivables amidst a sharp increase in consumer gas prices.PSO Waits for Release of Funds Amid Financial Crisis Intensified

Receivables are Rs500 billion from SNGPL, Rs150 billion from GENCO, and Rs27 billion from HUBCO and PIA, totaling Rs810 billion.

Liquid oil consumption in Pakistan dropped from 13,005K tons in 9MFY23 to 11,485K tons in 9MFY24, an 11.7% decrease. HSD volumes declined by 249K tons, and PMG volumes fell by 302K tons. HSD demand is decreasing by 3-4K tons daily, mainly due to lower demand from industries and smuggling.

Furnace Oil (FO) also decreased by 982K tons as its usage in electricity generation has significantly reduced.

Management expects a slight year-over-year increase in oil consumption in the upcoming year, FY25.

PSO saw a 6% year-over-year rise in sales to Rs2.67 trillion and a 30% year-over-year rise in profit to Rs13.4 billion in 9MFY24.

In 3QFY24, EPS was Rs12.03/share, bringing 9MFY24 EPS to Rs28.54/share.
PSO leads the white oil market and increased its market share by 1.3 percentage points to 52.4% in 9MFY24. Specifically, market shares were 54.5% in HSD and 46.2% in PMG.

Inventory losses, as per management, are a ‘zero-sum game’ where a minimum stock of 20 days is to be maintained, leading to inventory gains or losses.

According to the FE-25 borrowing mechanism, the company borrows dollars from banks, incurring interest costs. Exchange gains or losses are borne by the Government of Pakistan (GoP). Currently, 60% of the company’s total borrowing is through FE-25 borrowing.
The company has added 37 new outlets.

PSO’s Future Outlook: Management is exploring various options, including setting up electric charging stations, diversifying into fintech, NBFC & renewable energy sectors, rehabilitating and developing new storages, exploring investment in a white oil pipeline project in northern Pakistan, and automating & digitizing locations and retail outlets.