Lahore, November 08, 2021 (PPI-OT):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 and 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.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com