December 27, 2021: Pakistan Credit Rating Agency (PACRA) has revised entity ratings of Sui Southern Gas Company Limited (SSGC) to ‘A’ for the long-term and ‘A2’ for the short-term. Meanwhile, the outlook on the assigned ratings remained negative.

As per the rating agency, SSGC business profile is considered adequate owing to its exclusive license to operate in areas of the franchise (provinces of Sindh and Balochistan) and guaranteed return on its net operating assets.

However, the company's profitability has been significantly impacted over the period on account of substantially high UFG disallowances and other matters pertaining to operating / non-operating income. The management has cushioned it through various integral steps including the establishment of the UFG hub on the DMD level; reflecting the effectiveness of controls. OGRA has also engaged a consultant for a Study on; RLNG Impact on UFG, the report of the consultant is expected by the third quarter of FY 22.

Further, the management of the Company is focusing to re-strategize its operations by diversifying its business streams in order to manage/ earn Non-Operating Income and ultimately improve the Company’s financial position, for this management is putting its efforts, by focusing on various strategies including I, reducing existing cost structure, ii, reduce UFG including legalizing non-customer connection into the system, iii, develop alternatives revenues stream outside the conventional business model. The management believes that the Company’s existing experience and expertise complement the capitalization of new revenue streams. However, the actual impact and timeliness of all the above actions are yet to be seen. The developments in the past include the proposal of the Economic Coordination Committee (ECC) to OGRA to allow the gas utility to stagger the impact of the remaining amount of PKR 18bln to five years (from FY16 and onwards), from which two instalments are left. Apart from this, timely settlement of pending receivables is also important as the company’s liquidity profile is significantly stretched. The management has represented that resolution of this, is expected. SSGC has not issued its financial statements for FY20 & FY21; quarterly financials are also pending. The management is obligated to issue its quarterly statements and yearly financial statements in due time, however; the company sought an extension on issuing of accounts owing to the finalization of a petition filed with OGRA.

The company's financial risk profile is deteriorated owing to consistent losses that have been made for the last few years. The leveraging of the company is on an upward trend over the periods; additionally, a diluted equity base raises more concerns about the already turbulent situation. The management received a ‘Support Letter’ from GOP that depicts the company’s resilience in current circumstances.

The downwards ratings with a negative outlook capture the diluted financial profile, aimed at reduced equity base and erosion of profitability. Also, the delay in the publishing of financial statements is a consideration for rating watch.

PACRA

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