GCR Upgrades Geregu Power Plc.’s Rating Outlook to Positive
African markets-focused rating agency GCR Ratings has affirmed Geregu Power Plc’s national scale long-term and short-term issuer ratings of A(NG) and A1(NG), respectively.
In a rating note release, GCR said it also affirmed the national scale long-term issue rating of A(NG) accorded to Geregu Power Plc’s N40 billion Series 1 bond. The outlook was revised to positive from stable, according to the rating note.
The positive outlook is anchored on the potential for a rating uplift for Geregu Power Plc, if the strong earnings and sound leverage metrics are sustained over the next 12 to 24 months, GCR said.
The African-focused rating agency noted the federal government of Nigeria (FGN) proposed N4 trillion intervention fund to settle legacy receivables with the power sector.
“If implemented, this could improve cash flows and liquidity; however, we expect that a significant portion of the funds will be utilised to settle outstanding gas payables.
“The company’s ratings balance its strong financial profile against the industry wide illiquidity constraint indicated by the high receivables”, GCR added.
“Geregu owns and operates the 435MW Geregu 1 power plant which currently contributes around 10% of the total electricity supplied to the national grid. The plant recently underwent a major overhaul which improved capacity utilisation to 350MW from 275MW previously.
“Apart from the proposed acquisition of a new power plant, named Geregu 2, there are expansion plans to increase capacity including penetration of the renewable energy space, but these would only yield benefits over the longer term”.
The rating note explained that Nigerian Bulk Electricity Trading Plc (NBET) is the sole off-taker for all power generated to the national grid and is Geregu’s sole customer, similar to all players.
However, there are ongoing reforms within the electricity sector to facilitate bilateral contracts between the power generation companies and distribution companies, ratings analysts said.
“We factored a slight improvement into the earnings assessment based on Geregu’s strong earnings generation, which has been sustained over the review period. Revenue rose by 65.4% to N137.1 billion (USD92.7 million) in the financial year which ended 31 December 2024, despite the decline in power generation due to the plant overhaul.
“The topline growth was driven by the exchange rate movement because invoices are indexed to USD. Power generation has since improved post the completion of the overhaul in March 2025 and it supported an annualised revenue growth of 27.8% for the six-month period that ended 30 June 2025.
“We expect stronger power generation to further enhance revenue by 40% in 2025. Geregu has maintained a relatively stable cost profile with gas supply accounting as the major cost driver”, GCR highlighted.
Ratings analysts stated that although gas is priced in US dollar, the company’s sales are benchmarked to US dollar, thereby offsetting the exchange rate risk.
Geregu Power earnings before interest tax depreciation and amortisation (EBITDA) margin has been maintained around 40% over the past five years and we expect the trend to be sustained over the next 12-24 months.
GCR said in the rating note that leverage and capital structure is a strong rating driver for the company given the low debt relative to the earnings. While Geregu obtained additional loans to finance completion of the overhaul and support working capital, some maturing obligations were repaid resulting to a slight moderation in gross debt to N63 billion in H1 2025 from N65 billion in 2024.
The company’s gross debt to EBITDA was noted to have strengthened below 1x in June 2025 from 1.1x in 2024, and ratings analysts expect this position to be sustained over the next 12 to 18 months- underpinned by the strong earnings.
“Given the high interest rates on the additional working capital loans, net finance cost doubled to N3.4 billion in June 2025 from N1.7 billion in 2024.
“Nonetheless, EBITDA coverage of interest at 10.6x in June 2025 (2024: 34.3x) is considered strong and we expect the metric to be sustained around 11x over the outlook period.
“Although the company is exposed to the industry wide challenge of high receivables, the impact on cash flows has been mitigated by the high payables”. GCR revealed in the rating note that Geregu Power’s operating cash flow (OCF) coverage of debt was sustained above 50% in H1 2025 and should remain strong over the next 12-18 months.
“The proposed FGN interventions to settle outstanding receivables could potentially improve cash flows although we expect that the company would also clear outstanding payments to gas suppliers”, ratings analysts added.
The positive liquidity assessment is based on the strong cash generation with operating cash flow projected at N43 billion which can cover the debt repayment of N22.9 billion. “We have also factored the cash balance of N3.7billion as of June 2025, excluding the unutilised bond proceeds earmarked for acquisition of the Geregu 2 power plant”.
Furthermore, minimal capital spending of just N2.5 billion is anticipated following the completion of the plant overhaul. Liquidity sources versus uses coverage is estimated at 2x over the 6-month period to December 2025 and 1.6x over the next 18 months to December 2026.
GCR said the company’s ratings remain constrained by the systemic collection challenges within the distribution end of the power value chain.
Analysts said however, there have been several reforms designed to tackle the illiquidity problem including the introduction of bilateral contracts between power generation companies and distribution companies as well as the selective implementation of a cost reflective tariff system.
“While these policies are yet to yield any positive impact as receivables jumped to N150.6 billion in H1 2025 from N43.7 billion in 2023, we note the proposed intervention of N4 trillion by the federal government to settle outstanding receivables within the sector over the next 12-18 months”.
According to GCR, Geregu Power Plc raised an initial N40 billion through Series 1 Senior Unsecured Bonds Issuance (bond) under its N100 billion Multi Instrument Issuance Programme registered with the Securities and Exchange Commission in 2022.
The bond has a tenor of 7 years with a legal maturity date of July 2029 and constitute senior, direct, irrevocable, and unsubordinated obligations of the Issuer.
The bond is noted to bear the same default risk as the issuer. Accordingly, the national scale long term issue rating of the bond is equalised with the national scale long term issuer rating of Geregu Power Plc.
The positive outlook is anchored on the potential for a rating uplift in the near term, if the strong earnings and sound leverage metrics are sustained over the next 12 to 24 months.
“If implemented, the proposed fund intervention by the federal government to settle legacy receivables could enhance cashflows and liquidity.
“However, we expect that a significant portion of the intervention funds will be utilised to settle outstanding gas payables”, GCR said in the rating note. Oando to Raise N500bn, Convert $300m Debt to Equity
