GCR Affirms North South Power Company Ratings, Outlook Stable
GCR Ratings has affirmed the national scale long-term and short-term Issuer ratings of AA(NG) and A1+(NG) respectively accorded to North South Power Company Limited, according to its recent rating note.
Concurrently, the emerging markets ratings firm said it also affirmed the national scale long-term Issue rating of AA (NG) accorded to the N6.3 billion Series 2 Fixed Rate Senior Green Bond issued by the company with outlook accorded as stable.
According to the rating note, the stable outlook reflects GCR’s expectation that the essential nature of electricity will continue to support steady earnings, strong earnings before interest tax depreciation and amortization (EBITDA) and robust cash holdings.
Moreover, North South Power Company is said to have maintained ample cash and facilities to support medium term expansion plans.
GCR’s affirmation on Nigeria based North South Power Company Limited balances its established operations and strong financial profile against the general illiquidity across the Nigerian power sector value chain, which has resulted in the accumulation of receivables.
North South Power Company’s competitive position is anchored on its substantial production capacity derived from running the 600MW Shiroro Hydro plant, according to the rating note.
GCR said the project is being complemented by recent 25-year concession of the 30MW Gurara Hydro plant and the plan to construct a 300MW solar power plant over the medium term.
Despite the slightly lower power generation in financial year 2021 due to scheduled maintenance, the top line remained resilient on the back of currency translation gains as earnings are indexed against the United States dollar, the rating note stated.
It added that in the first half of 2022 results, the company saw annualised 11% decline in topline. Taking note of the development, GCR expects only a slight revenue growth of 3% in this year, supported by higher rain yield in the second half of 2022.
Furthermore, GCR anticipates future earnings stability underpinned by the essential nature of electricity and the long-term agreement with Nigerian Bulk Electricity Trading Plc, the rating note added.
It said this is counterbalanced by earnings concentration to a single buyer, saying that North South Power intends to further diversify its income stream through the direct sale of power to eligible customers, but this segment remains a negligible portion of revenue.
Expressing a view, GCR Ratings stated that it does not expect the customer profile to change meaningfully over the rating horizon.
The rating note stated that the power generating company’s EBITDA margin remains strong albeit manifesting some compression in recent period.
The rating note stated that the company’s EBITDA margin declined to 46.9% in the first half of 2022 as against 56.8% in 2021 and 56.6% in 2020 following the increase in staff cost related to expatriates.
Notwithstanding, GCR expects EBITDA margin to trend around the 50%-55% range in financial year 2022-23 on the back of well managed operating expenses.
For the company, GCR sees leverage as a key rating strength, underpinned by its robust cash holdings against a moderate debt level with gross debt at N15.4 billion at the end of first half of 2022 from N15.7 billion in year end of 2021 versus N8.5 billion in 2020 despite additional debt issuances during 2021.
Operating cash flow has remained solid over the review period, trending above 60%, according to GCR Rating. Given improved collections in 2021, operating cash flow to debt coverage strengthened further to 156.7% in 2021 from 95.8% in 2020 and is expected to remain sound over the outlook period. READ:GCR Affirms Coronation Strong Credit Rating Plus Stable Outlook
The rating note stated that EBITDA coverage of interest has also remained strong supported by high interest income given the huge cash balances. GCR expects this to be sustained over the outlook period.
Despite the company’s strong standalone financial profile, the ratings remain constrained by the systemic collection challenges within the distribution end of the power value chain, GCR Ratings note stated.
“While there was a general liquidity improvement in 2021, the inconsistency of debtor settlement and the absence of a definite payment plan within the sector remains a concern.
“Looking ahead, the ratings will remain constrained by the foregoing, until there is a significant improvement in collection efficiencies via adequate metering and a cost-reflective tariff system”.
In April 2021, North South Power Company Limited through a special purpose vehicle, NSP-SPV Powercorp Plc, raised N6.3 billion from the Nigerian debt capital market via Series 2 Senior Unsecured Bond Issue under its N50 billion Bond Issuance Programme.
GCR Rating said the Bond has a tenor of 10 years with a legal maturity date of April 2031 and constitutes direct, unconditional, senior and unsubordinated obligation of the Issuer and NSP.
Accordingly, all payments obligations under this Issue rank parri passu with all other present or future unsubordinated payment obligations of the Issuer and NSP.
# GCR Affirms North South Power Company Ratings, Outlook Stable#