Byco Oil Pakistan Limited (“BOPL”) was seeking to complete several strategic projects which would have improved the performance of its flagship refinery, the largest in Pakistan. BOPL wished to finance the required capital expenditure by accessing the local debt capital markets and specifically the Islamic finance market. Being a new company (commercial operations began in 2015) BOPL needed GuarantCo’s support to successfully raise the financing it required as local bond investors will not invest in a company that has not been operational for at least 3 years.
GuarantCo’s 100% guarantee improved the local credit rating of ByCo’s Sukuk to AAA thereby enabling conservative new Islamic investors to invest.
GuarantCo’s assistance will allow BOPL to improve its productivity by a further 400,000 metric tonnes of petroleum products for domestic consumption. This increase in productivity will be achieved by implementing technology that will allow BOPL to recover both waste heat and oil derivatives which can be recycled into power and needed petroleum products respectively, thereby improving the overall efficiency of the refinery in tandem with improving its environmental impact.
According to the Asian Development Bank, prolonged power shortages have cut Pakistan’s GDP by about 2%. Crude oil is significantly cheaper to import than the furnace oil used by a number of power producers and as such having significant onshore refining capacity helps the Government of Pakistan to reduce its import bill thereby contributing to the health of the domestic economy and improving its energy security. The improvement in productivity at BOPL that the GuarantCo supported financing will create will help reduce this financial burden.
A further development aim of this transaction is to mobilise funding from non-traditional investors. To this end the transaction is being structured as a 5 year AAA rated Shariah compliant corporate bond or sukuk and will be the first of its kind in Pakistan.