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VIS reaffirms entity ratings of Sui Northern Gas Pipelines

SNGPL seeks gas price increase of Rs506/MMBTU
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December 04, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Sui Northern Gas Pipelines Limited (PSX: SNGP) at ‘AA+’ for long-term and ‘A-1+’ for short term with a stable future outlook, latest press release issued by VIS showed.

A medium to long term rating of 'AA+' indicates high credit quality. Protection factors are strong.

Risk is modest but may vary slightly from time to time because of economic conditions.

Short term rating of 'A-1+' indicates the highest certainty of timely payment.

Short-term liquidity, including internal operating factors and /or access to alternative sources of funds, is outstanding and safety is just below the risk-free Government of Pakistan’s short-term obligations.

The previous rating action was announced on November 02, 2022.

SNGPL, a public limited company listed on the Pakistan Stock Exchange, is primarily engaged in the transmission and distribution of natural gas within North Central Pakistan, serving nearly 7.5 million consumers.

Established in 1963, the Company has grown its network to 9,052 KM of transmission and 146,327 KM of distribution infrastructure.

SNGPL holds a strategic position in the gas distribution sector of Pakistan, operating within a monopolistic market structure alongside Sui Southern Gas Company Limited (SSGC).

The semi-government ownership status of SNGPL, with approximately 58% of shares held directly or indirectly by the government, exhibits strong sovereign support.

The Company's business risk profile drives strengths from its established franchise, guaranteed return on net operating assets, and sovereign presence across the value chain.

Assessment of financial profile is based on financial statements as of FY22.

The finalization of audited financial statements of FY23 is expected to be delayed due to cascading impact of delay in finalization of Revenue Requirements of prior years.

SNGPL has shown improvement in its capitalization profile, with improved gearing on account of reduction in total debt and an increase in equity.

However, the company continues to be exposed to circular debt with sizeable receivables and payables on the books, leading to higher leverage.

Liquidity therefore remains critical for ratings. The company has been managing liquidity by pushing payables and utilizing short-term lines to bridge the gap arising from delay in receivables.

Credit risk against receivables, however, remains low as majority are due from government entities/government.

The recent gas tariff increase, effective from November 01, is expected to narrow the tariff differential and reduce the accumulation of circular debt.

Ratings also incorporate materialization of the company’s objective to reduce the absolute quantum of unaccounted-for gas (UFG) losses.

SNGPL has capex plans to continue to invest in transmission and distribution network as well as development of new discoveries, which are vital given the annual depletion of indigenous gas.

Going forward, ratings remain sensitive to settlement of inter-corporate circular debt along with maintenance of company’s financial risk profile.

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Posted on: 2023-12-04T10:19:26+05:00