Press Release
VIS Maintained Preference Share Ratings of PGP Consortium Limited
Karachi, July 04, 2023: VIS Credit Rating Company Limited (VIS) has maintained the preference share ratings of PGP Consortium Limited (PGPC) at ‘BBB’ (Triple B). Outlook on the assigned ratings has been revised from ‘Rating Watch – Developing’ to ‘Positive’. The long-term rating of ‘BBB’ for preference shares signifies adequate credit quality; Protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. The entity ratings of PGP Consortium Limited (PGPC) are placed at ‘A-/A-2’ (Single A Minus/A-Two). The medium to long-term rating of ‘A-’ signifies good credit quality with adequate protection factors. Moreover, risk factors may vary with possible changes in economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Risk factors are considered variable if changes occur in the economy. The previous rating action was announced on November 28, 2022.
The ratings assigned to PGPC take into account company’s ownership profile, unique business model and strategic positioning in the energy sector of the country. PGPC is a wholly owned subsidiary of Pakistan GasPort Limited (PGPL), whose sponsors have vast experience of establishing and operating energy sector projects. Ratings derive strength from the company’s low business risk profile encompassing long-term LNG terminal Operation and Services Agreement (OSA) inked with Pakistan LNG Limited (PLL) (formerly Pakistan LNG Terminals Limited (PLTL)) ensuring guaranteed revenues and cash flows. The ratings are dependent upon smooth operations of the business to maintain margins for comfortable debt servicing coverage.
On the profitability front, bottom line improved largely due to exchange gains and absence of compensation for financial support provided by related party. The ratings also take into account implementation of IFRS-16 which requires recognition of all leased assets and corresponding liabilities arising from lease transaction on the books; however, this magnified position does not impact the company’s projected financial position. As per management, the company’s repayment capacity in terms of debt service coverage ratio would remain at a comfortable level over the rating horizon. Meanwhile, improvement in leverage indicators over time due to debt retirement, profit retention and internal capital generation has also been incorporated in the assigned ratings.
Ratings were placed on ‘Rating Watch-Developing’ status on account of PGPC’s arbitration proceedings with PLL in the London Court of International Arbitration (LCIA) on termination notice served to the company. In April 2023, LCIA concluded the arbitration process in favor of the Company which resulted in PLL withdrawing termination notice and all other option exercise notices. Consequently, the outlook has been revised to ‘Positive’. Meanwhile, upholding operational performance in line with agreed performance levels and timely recovery of substantial receivables from related parties would remain a key rating driver going forward.
For further information on this rating announcement, please contact Mr. Saeb Jafri (Ext: 202) or the undersigned (Ext: 201) at (021) 35311861-64 or email info@vis.com.pk
Javed Callea
Advisor
Applicable rating criterion: Corporates (May 2023)
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
Rating The Issue (November 2021)
https://docs.vis.com.pk/docs/Notchingtheissue202007.pdf
VIS Rating Scale:
https://docs.vis.com.pk/docs/VISRatingScales.pdf
Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .