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The Pakistan Credit Rating Agency Limited
Press Release

Date
15-Dec-23

Analyst
Hashim Yazdani
hashim.yazdani@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

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.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.