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GCR Ratings, a provider of corporate credit ratings, commentary, and research, has upheld the national long-term and short-term Issuer ratings of Geregu Power Plc, a leading power-generating company led by Nigerian billionaire Femi Otedola.
The ratings were affirmed at A(NG) for the national long-term and A1(NG) for the national short-term, with the outlook revised to stable.
In a recent announcement, GCR Ratings disclosed that the affirmation of the ratings for Geregu Power is rooted in the company’s robust capacity for generating impressive earnings, which bolsters resilient cash flows and favorable leverage metrics.
These strengths, however, are carefully weighed against the sector-specific challenge of concentration risk and the prevailing general illiquidity within Nigeria’s power sector. The adjustment to a stable outlook reflects GCR Ratings’ belief that the company’s business model will persist in generating sound earnings.
GCR Ratings emphasized that the evaluation of earnings takes a neutral stance regarding the ratings. Although the revenue witnessed an average growth of 26.6 percent from 2019 to 2021, a decline of 32.9 percent occurred in 2022, amounting to N47.6 billion ($62.9 million). This decline resulted from an unexpected force majeure on the Trans-Forcados Pipeline, which impacted the gas supply to Geregu’s power plant.
This nationwide challenge led to a three-month-long plant shutdown. Nevertheless, gas supply has since regained stability, and revenue rebounded to N34.7 billion ($45.9 million) in the first half of 2023.
GCR Ratings projected: “We anticipate a full-year revenue of approximately N65 billion ($85.9 million) in 2023, moderated by the projected earnings dip due to the planned Q3 2023 overhaul of the plant. The EBITDA margin has demonstrated consistent strength and stability, maintaining a five-year average of 44 percent. We foresee this margin continuing its historical trend throughout the outlook period, as no significant shifts are anticipated in Geregu’s cost structure.”
Under Otedola’s guidance, Geregu Power has become a leading player in Nigeria’s power industry, operating a 435MW gas-fired power plant (Geregu I), contributing around 10 percent of the nation’s total electricity generation.
The plant is slated for a substantial overhaul in Q3 2023, aimed at heightening its operational efficiency. Simultaneously, the company is in the process of acquiring an additional plant (Geregu II), which is expected to boost its overall generating capacity by an estimated 434MW.
This strategic step not only underscores the company’s dedication to fulfilling Nigeria’s energy demands but also seeks to amplify earnings and revenue by fostering continuous growth within the power sector.
In recent developments, Otedola, the chairman of the power-generating company, revealed a collaboration with the Lagos State government and the African Development Bank Group (AFDB) for a pioneering power transmission project.
Executed through a Public-Private Partnership (PPP), this venture aims to establish Nigeria’s maiden PPP power transmission project, further solidifying Geregu’s commitment to spearheading innovations within the Nigerian energy landscape.
