PACRA maintains entity ratings of Sui Southern Gas Company

December 19, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Sui Southern Gas Company Limited (PSX: SSGC) at "A+" for long term and "A1" for short term with a stable outlook forecast, latest press release issued by PACRA showed.

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.

SSGC’s profitability is highly susceptible to the aforesaid guaranteed return and the UFG losses that result from meter tampering, theft, and leakages.

Rigorous implementation of the 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 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 customers on competitive terms.

Due to the delayed OGRA decision on the SSGC petition for the Final Revenue Requirement (FRR), SSGC has recently published its audited financial statements for FY22 and the AGM is planned to be held on December 29, 2023.

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 the revaluation of the land on the company’s balance sheet.

The commitment from the government 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 the reduction of UFG remains crucial to sustain the ratings.

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