The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Maintains Entity Ratings of Sui Southern Gas Pipelines Limited

Rating Type Entity
(24-Dec-20 )
(28-Dec-19 )
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Negative Negative
Rating Watch Yes Yes

The ratings reflect significant pressure on the company’s financial profile, emanating from substantially high UFG disallowance and other matters pertaining to operating / non-operating income. The management has cushioned it through various integral steps including the establishment of UFG hub on DMD level; reflecting effectiveness of controls. The developments in the past include the proposal of Economic Coordination Committee (ECC) to OGRA to allow gas utility to stagger the impact of remaining amount of PKR 18bln to five years (from FY16 and onwards), from which only two installments are left which is a relief. Furthermore, the company has filed a petition with OGRA for Final Revenue Requirement (FRR) for FY18-19 and Estimated Revenue Requirement (ERR) for FY19-20 & FY20-21. Timely execution and expected positive financial impact of these is crucial to hold the ratings. 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 FY19 & FY20; quarterly financials are also pending, however the management accounts reflects that some heads of accounts are in evolving position. The management is obligated to issue its quarterly statements and yearly financial statements in due time however; company sought extension on issuing of accounts till Mar & Jun, 2021 for FY19 & FY20 respectively. Given SSGC's exclusive license to operate in its area of franchise (provinces of Sindh and Baluchistan), guaranteed return is increased on its net operating assets in FY19 17.43% (FY18-17%), the business profile is considered adequate.
The company's financial risk profile is manageable owing to no major CAPEX that has been made for the last few years. The ratings take comfort from the fact that the company leveraging has shown a declining trend over the periods; additionally, management is intending to strengthen its equity base. The management received a ‘Support Letter’ from GoP that depicts the company’s resilience in current circumstances.
The negative outlook captures 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.

About the Entity
SSGC is engaged in the business of purchase, transmission, and distribution of natural gas. The company is catering the requirements of ~2.8mln customers. The government holds the largest direct stake (~53%). The eleven -member board comprises NEDs. Mr. Muhammad Amin Rajput - Acting MD since May20, is supported by an experienced team.

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.