The Pakistan Credit Rating Agency Limited
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Maryam Arshad

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PACRA maintains Entity Ratings of Sui Northern Gas Pipelines Limited

Rating Type Entity
Action Maintain Maintain
Long Term AA- AA-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

SNGPL enjoys high ratings due to its strategic importance as the country's largest gas utility company. The business profile of the company draws strength from its established franchise network and guaranteed return on its net operating assets. In the last few years, the company has pursued a multi-dimensional framework to sustainably reduce the absolute quantum of unaccounted for gas and percentage proportion, and results are reflected from reduced UFG volumes to 48.3Bcf from 52.5Bcf. SNGPL witnessed a slight increase in UFG volumes (FY20: 12.3%; FY19: 11.86%) which drove down the growth in revenues. Consequent to the UFG study conducted by OGRA and revision of UFG benchmark calculation, the allowed UFG percentage of the company was 6.98% for FY20; yet the company’s delta (actual vs. allowed) followed the increasing trend over the period and resultant in increased disallowance figures (FY20: PKR 11.7bln; FY19: PKR 10.5bln). Further, the company, being part of circular debt, has significant receivables and payables on its balance sheet. Though working capital cycle is being managed through augmented short-term borrowings which might create liquidity challenges for the company in the future. SNGPL has published its financial statements for the year ending June-20, subsequent quarterly statements are recently released; however, delays in the finalization of financial statements for the year ending June 2021 are expected, attributable to time being taken finalization of Final Revenue Requirement (FRR) by OGRA. It is pertinent to mention that after OGRA's determination, the company will be able to complete the remaining formalities within 60 days including the statutory period of 21 days required to convene the Annual General Meeting. SNGPL is part of the Re-gasified Liquid Natural Gas (RLNG) project – which constitutes ~70% of gross sales in FY20, which also enabled the company to sustain its profit margins over the years (3QFY21: PKR 8.9bln; FY20: PKR 5.9bln; FY19: PKR 7.1bln). It is also pertinent to mention that as per management representations, auditors of the company presented emphasis on matters paragraph drawing attention towards the settlement of intercorporate balances and accumulation of circular debt. Several projects are currently under process, pertaining to expanding the transmission and distribution networks. OGRA has allowed guaranteed return on LNG pipeline infrastructure. Hence, incremental cashflows are supplement SNGPL’s financial risk profile. Going forward, accumulating figures relating to differential margins, settlement of inter-corporate claims & circular debt issues will remain critical.
Meanwhile, ratings continue to draw comfort from sovereign ownership of the company. Ratings are dependent on the management's ability to prudently manage its financial risk profile.

About the Entity
SNGPL, the largest gas transmission & distribution company in Pakistan, is engaged in the business of purchase, transmission, and distribution of natural gas. The Government of Pakistan has a direct shareholding of ~32% in the company. The twelve-member Board comprises one ED and eleven NEDs including five independent directors. Mr. Ali J. Hamdani took the position of CEO/MD in Dec-2020. He is accompanied by an experienced team. On 20th November 2019, Mrs. Roohi Raees Khan, Director of SNGPL has been appointed as Chairperson of the Board in place of Late Mr. Syed Dilawar Abbas. However, she was appointed on July, 20 after the election of directors held in early the month of July, 20. She holds experience of more than a decade and is represented on various company boards.

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.