Analyst
Hashim Yazdani
hashim.yazdani@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains the Entity Ratings of Sui Southern Gas Company Limited
Rating Type | Entity | |
Current (15-Dec-23 ) |
Previous (31-Jan-23 ) |
|
Action | Maintain | Upgrade |
Long Term | A+ | A+ |
Short Term | A1 | A1 |
Outlook | Stable | Stable |
Rating Watch | Yes | Yes |
Sui Southern Gas Company Limited (SSGC) is amongst the two companies that possess the integrated license for transmission, distribution and sale of Natural Gas and RLNG. The Company being the sole operator in Sindh and Balochistan has been provided a guaranteed return by OGRA on its net operating assets. The Company’s profitability is highly susceptible to aforesaid guaranteed return and the UFG losses that result from meter tampering, theft and leakages. Rigorous implementation of UFG reduction plan by the dedicated UFG division has proved to be fruitful in Sindh and Karachi. The Company has implemented a comprehensive strategy of dividing Karachi into sub-regions each having its own team for round the clock monitoring and management. As a result, UFG in the Karachi region has declined substantially to single digit figure (i.e., under 9%). Similar efforts are underway in interior Sindh which is showing steady progress towards UFG reduction. However, the Balochistan region remains under stress for its severely high UFG of above 50% resulting in a cumulative UFG for the Company to cross above its minimum benchmark which was prescribed at 6.97% for FY22 by OGRA. High UFG above the benchmark translates into huge losses for the Company. Furthermore, the recent gas tariff increase is expected to narrow the gas tariff differential and contribute towards cash flow generation. Timely settlement of pending receivables is also important as the Company’s liquidity profile is significantly stretched. In addition, the Company is continuously working to diversify its business streams in order to manage/ earn Non-Operating Income. SSGC LPG (Pvt) Limited is a wholly owned subsidiary of SSGC engaged in LPG marketing and distribution across the country. The LPG market share of the company has increased to 7% owing to sold volumes. Furthermore, SSGC AE (Pvt) Limited is another venture by SSGC to bring unallocated gas through alternate ways to the customers on competitive terms. Due to the delayed OGRA decision on SSGC petition for the Final Revenue Requirement (FRR), the Company has recently published its audited financial statements for FY22 and AGM is planned to be held on December 29, 2023. After AGM, FRR process for FY23 will follow.
The Company’s financial profile has deteriorated over recent years owing to consistent losses. The negative equity balance on the balance sheet has been reduced significantly as a result of revaluation of the land on the Company’s balance sheet. The commitment from GoP to extend necessary financial support to the Company contributes towards the assigned ratings. Going
forward, the timely publishing of financial statements along with consistency towards reduction of UFG remains crucial to sustain the ratings.
About
the Entity
SSGC is engaged in the business of purchase, transmission, and distribution of natural gas and RLNG. The government holds the largest direct stake (~53%). The seven-member board comprises of Non Executive Directors from diverse professional backgrounds. Dr. Shamshad Akhtar is the Chairperson of the board. Mr. Muhammad Imran Maniar is the Managing Director and is accompanied by a team of experienced professionals.