Announcements Corporate Rating Alerts

GCR affirms North South Power Company Limited’s National Scale Rating of A-(NG); Outlook Stable

Lagos, 15 January, 2021 — Global Credit Ratings has affirmed the national scale rating assigned to North South Power Company Limited of A-(NG) and A2(NG), in the long term and short term respectively; with the outlook accorded as Stable. The ratings are valid until October 2021.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit rating(s) to North South Power Company Limited (“NSP” or the “Company”) based on the following key criteria:

The ratings reflect NSP’s niche market position in a highly fragmented market, underpinned by its demonstrated ability to profitably manage and operate the 600-megawatt Shiroro Hydro Electric Power Plan, under a 30-year concession agreement with the Federal Government of Nigeria.

The power sector generally displays low economic cyclicality due to the crucial nature of the services being provided. Competition is considered relatively low, as the huge gap between demand and supply implies strong potential for capacity build-out. That said, the industry faces a range of challenges, primarily weak legacy collections, which have seen power generation companies’ earnings partly being subsidised by the government. As such, base operating cash flows remain volatile, with material non-performing debtor balances. While GCR has noted the increase in NSP cash reserves, this is underpinned by balances owed to government agencies, as management awaits outcomes on offsetting discussions. Ongoing interventions by government could see sustained improvement in cash generation going forward, although this depends on enabling infrastructure being put in place to improve collections across the value chain.

The Company maintained an upward trajectory in revenue prior to 1H FY20, with sustained offtake supporting a five-year CAGR of 34% to FY19. Although NSP is rolling out revenue diversification strategies, these are likely to materialise in strong growth over the medium to long-term.

Earnings generating capacity is strong, supported by the relatively cost-effective hydro-electric power infrastructure. As such, notwithstanding observed volatility, the EBITDA margin is expected to trend well above domestic industry levels.

NSP’s leverage position is considered to be relatively conservative, with sufficient headroom to fund a sizeable capex backlog. Management plans to raise up to N5.5bn through bond issuance in the short term, and normalised EBITDA is expected to be able to cover total obligations by 75%-125%, while operating cash flow to debt coverage is expected to trend between 50%-100% over the outlook period.

A relatively quick recovery in earnings by FY21 is expected to support reasonable liquidity coverage going forward. Risks to an otherwise sound liquidity profile could arise from sustained pressure on the cash conversion cycle, and/or high distributions during the capex upcycle.

Upward movement in the rating could follow sustained improvement in profitability and liquidity metrics on the back of timely completion of planned capacity expansion projects. Conversely, further escalation in debtors’ absorptions that impair liquidity, profitability and/or debt serviceability could result in a negative rating action.

NATIONAL SCALE RATINGS HISTORY

Rating Class Rating Outlook Date
Initial rating
Long term BBB+(NG) Stable August 2017
Short term A2(NG) Stable August 2017
Last rating
Long term A-(NG) Stable December 2019
Short term A2(NG) Stable December 2019

ANALYTICAL CONTACTS

Primary Analyst

Funmilayo Abdulrahman

Senior Credit Analyst

funmilayo@gcrratings.com

Committee Chairperson

Dave King

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Corporate Entities, updated February 2018

NSP rating reports (2017-19)

Glossary of Terms/Ratios (February 2018)

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://GLOBALRATINGS.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT HTTP://GLOBALRATINGS.COM.NG.

SALIENT FEATURES OF ACCORDED RATINGS

GCR affirms that a.) no part of the rating process was influenced by any other business activities of the credit rating agency; b.) the ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity; d) the ratings expire in August 2019.

NSP participated in the rating process via face-to-face management meetings and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit ratings have been disclosed to North South Power Limited with no contestation of the ratings

The information received from NSP to accord the credit rating included;

  • 2019 audited annual financial statements (plus four years of comparative numbers),
  • Unaudited management accounts as at 1H FY20
  • Industry comparative data and regulatory framework
  • information specific to the rated entity and/or industry was also received.

The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.

image_pdfPDF View


ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright 2019 GCR INFORMATION PUBLISHED BY GCR MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. Credit ratings are solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR is compensated for the provision of these ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information.GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained in each credit rating report and/or rating notification are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained in each credit rating report and/or rating notification must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.