Rs. one billion TFCs by SSGC
Funds being raised to revamp and expand gas
By SHABBIR H. KAZMI
July 23 - 29 , 2001
Sui Southern Gas Company Limited (SSGC) has prepared
a comprehensive infrastructure development plan, gas infrastructure
rehabilitation and expansion project (GIERP). This will be financed
through issue of Rs 3 billion term finance certificates (TFCs). The
issue consist of maximum of three tranches over a period of 36 months.
Out of this first tranche of one billion rupees, having a tenor of five
years has been issued and TFCs for the remaining amount will be issued
as and when desired by the Company.
SSGC's first TFC issue was successfully redeemed in
October last year. It also had the distinction of being the only issue
so far which maintained its AA (double A) rating throughout the life of
the issue. The second issue was also rated AA by Pakistan Credit Rating
Agency (PACRA). It is expected to contribute to the growth, both in
terms of profile and depth of the debt instruments market in Pakistan.
Out of this a total of one billion rupees, Pre-IPO
amounted to Rs 800 million and public offer was for Rs 200 million. The
issue was offered for public subscription on May 31 and June 1, 2001.
Against the public offer, a total of 158 applications were received
amounting to Rs 229.6 million. Allotments to the general public is being
made as per the basis of allotment published in the prospectus. All
applications for Rs 5,000, Rs 25,000 and Rs 100,000 have been
accommodated and applications of over Rs 100,000 are being allotted on
pro rata basis.
The instrument has a tenor of five years and has a
hybrid coupon structure, payable semi annually, with a floor of 13 per
cent and a ceiling of 18 per cent per annum. According to a KASB report,
the coupon is expected to have a fixed rate of return of 14.5 per cent
for the first two years and for the remaining tenor, the instrument will
carry a floating rate at discount window rates plus 110 basis points.
The AA rating denotes very high credit quality and a very low
expectation of credit risk.
A register of TFC holders will be maintained by the
Company which will be closed for a period of at least seven days prior
to redemption date. The TFCs will be redeemed on due date through
dispatch of a cross cheque to the registered holder. Therefore, TFC
holders will not need to physically go to the counter of any specific
bank. No redemption reserve is being created for the redemption of TFCs,
as the Company will have adequate funds to meet its financial
obligations arising from the issue of TFCs.
The gas distribution industry in Pakistan is
effectively regulated duopoly. Gas productions carried on by several
local and foreign exploration companies. The GoP sets gas prices and
allocates supply, and the gas distribution companies are merely involved
in the transmission and distribution of gas. Gas prices are presently
set in a way that it guarantees the gas distribution companies a certain
fixed return on operating assets. The return on operating assets is 17
per cent per annum for SSGC and 17.5 per cent for SNGPL.
SSGC is an integrated gas undertaking and a major
energy sector company in Pakistan with a monopolistic market position in
the southern part of the country. It is a government owned and
controlled gas utility and is engaged in gas purification, transmission
and distribution of natural gas. It is a public limited company and
listed on all the three stock exchanges of Pakistan.
The GIERP aims at revamping and developing gas
distribution infrastructure to bring the newly discovered gas fields
online. SSGC has budgeted over Rs 4 billion for this capital expenditure
spread over 2001 to 2004. As a result of this investment, SSGC's
distribution will increase by about 50 per cent, to be realized on the
commissioning of the new pipelines.
SSGC's equity base has been increasing consistently
owing to the loan covenants. In FY2000, the Company's total debt reduced
significantly. Thus, equity coverage of total assets increased from 24.5
per cent in FY1999 to 27.8 per cent in FY2000.
SSGC's exposure to the state-owned power generation
and distribution entities, WAPDA and KESC, continues to remain high.
These utilities have always remained cash-strapped and delinquent in
paying their dues to SSGC. The burgeoning inter-corporate debt has been
adversely affecting SSGC's liquidity. Therefore, there is a need to
resolve the circular debt issue.
The prospects for SSGC's privatization brightens with
the establishment of the regulatory authority. Its LPG business was sold
recently. Expressions of interest for sale of meter manufacturing have
been invited. It has also been proposed by the Privatization Commission
that SSGC and SNGPL should be unbundled to create distribution
franchises in Sindh and Balochistan and putting up for sale.
The projected cashflow provide adequate coverage of
financial charges as the debt-equity ratio continues to improve. While
no financing shortfall is presently envisaged, arranging requisite
funds, if required, is not expected to be difficult for the Company.