GCR Ratings (GCR) has reaffirmed the national long-term and short-term Issuer ratings of Nigeria-based Geregu Power Plc at A(NG) and A1(NG), revising its outlook to Stable.
The ratings agency cited the company’s strong earnings capacity and robust cash flows as the driving factors behind this affirmation.
Geregu Power Plc, a leading player in Nigeria’s power industry, operates a 435MW gas-fired power plant known as Geregu I.
The plant accounts for approximately 10% of Nigeria’s total electricity output. The company is also in the process of acquiring another plant, Geregu II, expected to add another 434MW to its total generating capacity.
GCR’s revised outlook to Stable is based on the expectation that Geregu’s business model will continue to yield good earnings.
The company has consistently shown strong revenue growth, with an average increase of 26.6% from 2019 to 2021.
However, 2022 saw a sharp drop in earnings due to a force majeure affecting the Trans-Forcados pipeline, which led to a three-month plant shutdown. Revenues have rebounded in H1 2023, reaching NGN34.7 billion.
Leverage and Capital Structure – Despite a significant increase in gross debt to NGN60 billion in H1 2023 from NGN9.3 billion in 2021, Geregu’s leverage metrics remain strong.
The additional debt includes NGN40 billion Series 1 Bonds aimed at financing the acquisition of the Geregu II power plant. Net interest charges have increased but are still within moderate levels.
Liquidity Assessment – Geregu’s liquidity position is robust, supported by strong operating cash flows of an estimated NGN43.9 billion, sufficient to cover short-term debt obligations and dividend payments for 2023.
Challenges and Risks – Although the outlook is largely positive, challenges remain, particularly in the form of systemic collection issues within the power value chain. The absence of a sustainable payment plan from the Nigerian Bulk Electricity Trading Plc (NBET) remains a concern.
Future Triggers – Positive rating actions could follow if the successful acquisition of Geregu II results in better earnings. Conversely, any drop in anticipated earnings or aggressive dividend payments could lead to a downgrade in the ratings.
Bonds Issuance
In 2022, Geregu Power Plc raised an initial NGN40 billion through Series 1 Senior Unsecured Bonds under a N100 billion Multi-Instrument Issuance Programme. These bonds share the same default risk as the Issuer and have a tenor of seven years.
