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GEL Utility Limited 2019 Rating Review Report
2019 Corporate Rating Report
GEL Utility Limited
Rating Assigned:
This refers to a company with satisfactory financial condition and adequate
Bbb+ capacity to meet obligations as and when they fall due.
Outlook: Stable RATING RATIONALE
Issue Date: 20 March 2020
Expiry Date: 30 June 2020 ▪ Agusto & Co. affirms the “Bbb+” rating assigned to GEL Utility Limited (“GEL
Utility”, “GEL” or “the Company”). The rating reflects the Company’s leading
Previous Rating: Bbb+ position in the off-grid Independent Power Producer (IPP) segment,
adequate working capital and good cash flow, which is hinged on the
Industry: Power Generation continuous ability of the Nigerian National Petroleum Corporation (NNPC)
to meet payment obligation on the existing power purchase agreement
Outline Page (PPA) with the Company. The rating is moderated by GEL’s rising interest
Rating Rationale 1 burden which has depressed profitability in recent times. This is in addition
Company Profile 4
Financial Condition 6
to concerns over the Company’s governance structure and high
Ownership, Mgt & Staff 11 concentration risk in its client base given that the national oil company
Outlook 14 (NNPC) is GEL’s sole off-taker1.
Financial Summary 15
Rating Definition 19 ▪ The Company’s revenue in FYE 2018 remained largely the same as the 2017
performance at ₦5.1 billion reflecting the fixed volume and unit price of
Analysts: electric power sold to the Port Harcourt Refinery Company Limited (PHRC)
Christian Obiezu during the year. The Company posted a return on assets of 9% in 2018 which
christainobiezu@agusto.com was below our benchmark but a 17% return on equity as at the same date,
which was in line with our expectation. The unaudited accounts of GEL
Ikechukwu Iheagwam Utility for the twelve months ended 31 December 2019, showed a largely
ikechukwuiheagwam@agusto.co
m unchanged top-line performance over the same period in 2018. However,
the Company’s profit before tax (PBT) in FYE 2019 (unaudited) was
Agusto & Co. Limited depressed by the escalating interest expense, which resulted in a lower PBT
UBA House (5th Floor) margin of 10.1% (2018: 30.2%). Consequently, GEL’s ROE plunged to 5%
57, Marina while its ROA remained unchanged at 9%.
Lagos, Nigeria
www.agusto.com ▪ While we recognise the favourable payment terms in the subsisting PPA with
NNPC, we reckon that GEL’s ability to grow revenue beyond the current
levels is dependent on attracting new clientele by utilising the excess
capacity to supply energy to neighbouring communities. This is in addition
1
Presently, GEL Utility supplies 24 megawatts uninterrupted power to one of NNPC’s subsidiaries - the Port Harcourt Refinery Company Limited (PHRC)
with the national oil company acting as the off-taker
The copyright of this document is reserved by Agusto & Co. Limited. No matter contained herein may be reproduced, duplicated or copied by any means whatsoever
without the prior written consent of Agusto & Co. Limited. Action will be taken against companies or individuals who ignore this warning. The information contained in
this document has been obtained from published financial statements and other sources which we consider to be reliable but do not guarantee as such. The opinions
expressed in this document do not represent investment or other advice and should therefore not be construed as such. The circulation of this document is restricted to
whom it has been addressed. Any unauthorized disclosure or use of the information contained herein is prohibited.GEL Utility Limited
to scaling up its power generation capacity by investing in fuel-efficient
renewable energy plants.
▪ GEL Utility posted an operating cash flow (OCF) of ₦3.7 billion and OCF to
sales ratio of 71% in 2018 reflecting higher profit for the year. The
Company’s cumulative OCF over the last three years (2016 - 2018) was
sufficient to cover cumulative returns to providers of finance (which wholly
comprised interest payment) approximately 4 times, thus reinforcing our
opinion on GEL’s adequate capacity to meet obligations as they fall due.
However, the Company’s unaudited accounts for the twelve months ended
31 December 2019 showed an OCF of ₦3.4 billion, which represented about
79% of the 2019 sales but its interest coverage fell to 1.7 times to reflect
the increased interest burden.
▪ The Company’s high leverage as at FYE 2018 was underlined by the rising
interest burden after it issued a ₦13 billion 15-year infrastructure bond at
15.15% during the period. We expect coupon payments 2 to Bondholders
during the life of the bond to keep the Company’s interest expense to sales
ratio above the 2018 ratio of 19.8% while gross debt is expected to inch up
in the medium term as GEL seeks additional funds to execute future
expansion strategies. Consequently, we expect the Company’s leverage
position to remain high in the long term.
▪ Similar to prior year, GEL’s available working capital as at FYE 2018 and
unaudited accounts for the twelve months was sufficient to cover the short
term working capital need (STFN) which we consider satisfactory.
▪ Going forward, we recognise ongoing plans to scale up total annual power
generating capacity by at least 7 megawatts in the near term as well as the
development of renewable energy projects to boost the Company’s current
84 megawatts installed capacity. Pending approval by the central
government, we expect the continuing industry-wide discussion on price
deregulation aimed at changing the current cost-reflective energy tariffs, to
boost the Company’s future earnings. This is in addition to the growing
eligible customer3 segments, which provides an alternative market for the
Company’s 36 megawatts idle capacity.
▪ Based on the above, we hereby attach a stable outlook to GEL Utility Limited.
2
Coupon payment on the Series 1 Bond, which commenced in February 2020, is payable half-yearly
3
Eligible customer segments are clusters of qualifying energy customers who are willing and capable of purchasing power from the generation
companies without going through the transmission and distribution network at a premium
2 2019 Corporate Rating ReportGEL Utility Limited
Figure 1: GEL Utility’s Strengths, Weaknesses & Opportunities
Strengths Weaknesses Opportunities
•Good cash flow •Concentration risk in •Energy supply
customer base demand gap provides
•Adequate working opportunities for new
capital •Poor corporate players in the power
governance especially generation industry
•Stable, qualified and as the Chairman
experienced doubles as CEO •Diversification of
management team customer base
•High leverage
•Good staff •Utilising excess
productivity level •Underutilised assets capacity to serve
neighbouring
communities in the
current distribution
zone
3 2019 Corporate Rating ReportGEL Utility Limited
COMPANY PROFILE
Overview & Background
GEL Utility Limited, a member of the Genesis Energy Group, was incorporated as a private limited liability company
in September 2012 with a primary goal to deliver innovative electricity solutions to communities across Africa. The
Company’s principal activity is to develop, operate and provide either grid-connected or off-grid electric power.
GEL’s business model is hinged on building modular, industrial-style power plants while offering fuel-efficient
solutions across the generation and distribution value chain of the power sector.
In November 2013, GEL Utility signed a 20-year Power Purchase Agreement with NNPC as the off-taker to provide
electricity to one of its subsidiaries - the Port Harcourt Refinery Company Limited (PHRC). In 2014, the Company
completed the construction and installation of three General Electric (GE) TM 2500 84 MW dual-fired gas turbines
power generating units for the provision of uninterrupted electricity to the PHRC, one of the largest in Sub-Saharan
Africa. GEL commenced commercial operations and supply of power in November of the same year. The Company
operates as a captive power plant licensed by the Nigerian Electricity Regulatory Commission (NERC).
Ownership Structure
GEL Utility Limited was formerly owned by three institutional investors – Engro Energy Limited (45%), Christley
Nigeria Limited (33%) and Genesis Energy Limited (22%). However, the 9 million units of shares held by Christley
Nigeria Limited was successfully transferred to Genesis Power & Energy Solutions Nigeria Limited on 14 February
2018, making the latter the majority shareholder of GEL Utility with a combined 55% equity stake as at 31
December 2018.
Figure 1: GEL’s Shareholding Structure as at 31 December 2018
Genesis Energy DFC Trust and
90% 30%
Holdings Investment Ltd
Genesis Power and
55% Energy Solution
70
Christley Investment Akinwole
10% 100%
GEL Utility Ltd Omoboriowo II
45% Engro Power
Source: GEL Utility Limited’s 2018 Audited Accounts and Management Presentation
4 2019 Corporate Rating ReportGEL Utility Limited
Board Composition and Structure
As at 2018 financial year-end, GEL Utility had a six-member Board of Directors comprising four Non-Executive
Directors and two Executive Directors. The Board is led by its Chairman, Mr Akinwole Omoboriowo II who also
doubles as the Chief Executive Officer, while Engr Simon Shaibu is the Managing Director responsible for business
origination and growth of the Company following the resignation of the erstwhile MD (Ms Doyin Adele-Fadipe).
Subsequent to FYE 2018, Mr James Fasaye and Prince Arthur Eze resigned from the Board effective 11 Mrach 2019,
while Mr Ahsan Zarfar Syed was appointed as Executive Director representing Genesis Energy Limited.
Furthermore, Mr Shaikh Shamsuddin Ahmed also resigned his position effective 1 August 2019
Table 1: Current Directors
Names Designation Institution Represented Nationality
Mr Akinwole Omoboriowo II Chairman Genesis Energy Limited Nigerian
Engr Simon Shaibu Managing Director Genesis Energy Limited Nigerian
Mr Ahsan Zarfar Syed Executive Director Genesis Energy Limited Nigerian
Mr. Felix Achibiri Non-Executive Director N/A Nigerian
Mr Shahab Qader Khan Non-Executive Director Engro Energy Limited Pakistan
Other Information
As at 31 December 2018, GEL Utility’s total assets and liabilities stood at ₦27.7 billion and ₦18.5 billion
respectively, while total shareholders’ fund was ₦9.2 billion (2017: ₦7.6 billion). In the FYE 2018, the Company
generated a turnover of ₦5.1 billion and recorded a profit after tax of ₦1.6 billion (FYE 2017 ₦1.2 billion). GEL
Utility an average of 30 persons in its employment in FYE 2018 under the existing human resource outsourced
arrangement with Genesis Power and Energy Solutions Nigeria Limited.
The Company’s total assets and liabilities as at 31 December 2019 (unaudited) was ₦28.2 billion and ₦18.5 billion
respectively, while its total shareholders’ fund was ₦9.7 billion. As at the same date, GEL recorded a turnover of
₦5.2 billion and a profit after tax of ₦0.5 billion.
Table 2: Background Information
Authorized Share Capital: ₦27.3 million
Paid-up Capital: ₦27.3 million
Shareholders’ Funds: ₦9.2 billion
Registered Office: 48 Anthony Enahoro Street, Jabi, Abuja
Principal Business: Power Generation
Auditors: PricewaterhouseCoopers (PwC)
Number of Employees 30
Source: GEL Utility’s 2018 Annual Report
5 2019 Corporate Rating ReportGEL Utility Limited
FINANCIAL CONDITION
ANALYSTS’ COMMENTS
The Company’s functional currency is the United States Dollars in line with IAS 21, (requiring an entity to determine its functional
currency based on the primary economic environment in which it operates) and uses spot conversion rate on the date of the transaction.
GEL has a 70:30 United States (US) dollar to Naira in revenue split, given that its loans, operation and maintenance contracts, as well
as receivables, are denominated in US dollars. The Company maintains both a Naira and dollar financial statements and we have
chosen the former for this analysis.
PROFITABILITY
GEL Utility Limited’s primary activities involve the generation and sale of electric power to the Port Harcourt
Refinery Company Limited – a subsidiary of the Nigerian National Petroleum Corporation (NNPC) under an
executed Power Purchase Agreement (PPA) with NNPC acting as the off-taker. The Company currently utilises all
three units of its 28 megawatts gas-fired turbines to supply energy to the Port Harcourt refinery in Alesa Eleme,
River State, although discussions are ongoing with electricity distribution companies and other corporates to take
up the idle generating capacity estimated at 36 megawatts.
During the year ended 31 December 2018, GEL Utility recorded revenue of ₦5.1 billion which mirrored the 2017
amount owing to the fixed amount of power supplied to the off-taker and the relatively stable exchange rate during
the period. This is on account of the Figure 2: OPM, ROA & ROE – (2016 – 2019)
significant proportion of the Company’s
revenue that is denominated in foreign 70.0% 25.0%
currency . Agusto & Co notes that GEL’s
4 21.7%
60.0%
ability to grow future revenue is hinged on 20.0%
finding viable markets for its unutilised 50.0% 16.1%
14.7%
energy capacity.
13.9% 15.0%
40.0%
In the financial year ended 31 December 30.0%
10.0%
2018, GEL’s cost of sales inch up slightly
by 2% to approximately ₦2 billion to 20.0%
reflect a marginal increase in the 5.0%
10.0%
Company’s variable cost of operating and
maintaining the IPPs. The cost of sales 0.0% 0.0%
margin of 38.1% combined with operating 2019 2018 2017 2016
Unaudited
expense to sales ratio of 18.2% depressed
the Company’s operating profit margin to OPM ROA ROE Yield on 365 days NTB
43.7% in 2018 (2017: 48.8%) but remained
well above our benchmark. Based on plans to increase the Company’s total annual generation capacity by at least
7 megawatts in 2020 and to scale up its clientele base by extending idle capacity to eligible customer clusters, we
expect GEL’s operating margin to remain above industry average estimated at 13%. 5
4
Over 70% of GEL Utility Limited’s revenue is denominated in the US dollars
5
Agusto & Co. Electric Power Industry Research Report 2017
6 2019 Corporate Rating ReportGEL Utility Limited
In 2018, the Company’s other income from reimbursed insurance cost incurred on behalf of NNPC amounted to
₦0.3 billion, thus resulting in a net other income to sales ratio of 5.5%. In the same period under review, GEL’s
finance cost stood at ₦975.4 million, representing a significant 40% decline from the prior year as the Company
reduced its exposure to volatile foreign currency-denominated loans. Consequently, the Company recorded an
improved profit before tax to sales ratio of 30.2% in 2018 compared to the 22.8% recorded in the previous year.
Notwithstanding the improved profitability achieved in FYE 2018, GEL posted a lower pre-interest pre-tax return
on average assets (ROA) of 9% compared to the 10% recorded in the previous year but the Company’s pre-tax
return on average equity (ROE) of 17% was better than the average yield on government securities.
The unaudited accounts of GEL Utility Limited for the twelve-month ended 31 December 2019, showed a slight
increase in revenue owing to the limiting nature of the PPA contract and the slow business activities during the
period. Despite utilising over 75% of the bond proceed to significantly reduce the Company’s existing loans in
2019, interest expense rose sharply by 103% to approximately ₦2 billion from bond issue costs incurred during
the period. Consequently, profit after tax to sales ratio plunged to 10.1%, its lowest in three years. Barring an
increase in the Company’s gross debt, we expect GEL’s interest expense to remain about the same level from
coupon payments to Bondholders over the life of the bond.
Going forward, we note that GEL’s ability to boost profitability in the near to medium term is dependent on finding
other revenue sources by expanding its current single-client base and minimising earnings volatility. In our opinion,
GEL Utility Limited’s overall profitability requires improvement.
7 2019 Corporate Rating ReportGEL Utility Limited
CASH FLOW
GEL Utility generates cash from energy sales to Port Harcourt Refining Company – a subsidiary of the Nigerian
National Petroleum Corporation (NNPC) based on a subsisting 20-year Power Purchase Agreement (PPA) between
the Company and the off-taker stipulating payment period of 45 days after receipt of the invoice for electricity
supply. Furthermore, NNPC has a Charged Escrow Account (CEA) domiciled with First Bank of Nigeria Limited (FBN),
based on the PPA, which holds at least six months cash security of $11.8 million to cover the payment of energy
tariff, with a clause to replenish this account should a shortfall arise at any point in time6, thus guaranteeing the
settlement of outstanding invoices.
Although GEL’s operating cash flow (OCF) in FYE 2018 declined by 24% to ₦3.6 billion, owing to the increase in
trade debt, its OCF was sufficient to cover returns to providers of finance of approximately ₦1 billion. Furthermore,
the Company’s three-year (2016 – 2018) OCF as a percentage of returns to providers of financing (which wholly
comprised interest payment) of 370% Figure 3: OCF to Sales Ratio (2016 – 2019)
outstripped our benchmark while its 2018
180%
OCF to sales ratio of 71% and three-year
160%
average (2016 – 2018) ratio of 98% both 135%
surpassed our expectations and underlines 140%
the Company’s good cash-generating capacity. 120%
94%
100%
80% 67% 71%
The Company’s OCF in the twelve months
(unaudited) ended 31 December 2019 shrunk 60%
marginally to ₦3.4 billion (FYE 2018: ₦3.6 40%
billion) due to the decline in profit for the year 20%
held back by higher interest expense from 0%
2019 2018 2017 2016
issue cost on the Series 1 Bond. (Unaudited)
Notwithstanding, we note positively that
Operating cash flow/Sales Benchmark
GEL’s OCF as a percentage of returns to
providers of finance remained satisfactory at
173%.
In our opinion, GEL Utility Limited’s cash flow is good and sustainable in the medium term provided the off-taker
continues to honour the obligations under the PPA.
6
The PPA instructs FBN to transfer the amount due on an invoice which has not been paid to GEL’s revenue account without recourse to NNPC on the
transfer date.
8 2019 Corporate Rating ReportGEL Utility Limited
FINANCING STRUCTURE AND ADEQUACY OF WORKING CAPITAL
As at 31 December 2018, GEL’s working assets stood at ₦6.7 billion, up from ₦5.5 billion the prior year, largely
from trade receivables for outstanding receipts due from the Nigerian National Petroleum Corporation (NNPC)
arising from electricity supply to the Port Harcourt refinery and uncollected gas fees on behalf of the Nigerian Gas
Company (NGC) during the period.
As at the same date, the Company’s spontaneous financing, which represents amount outstanding from trade
purchases, unremitted value-added taxes on sales and other accruals, increased by 22% to approximately ₦6 billion
(FYE 2017: ₦5 billion). Nonetheless, GEL’s spontaneous financing was insufficient to cover working assets, leaving
a short-term financing need (STFN) of ₦0.7 billion as at year-end. Over the last three years, the Company has
consistently recorded a STFN owing to the Figure 4: STFS vs LTFN (₦’Billion)
delay by NNPC to settle electricity supply
invoices. However, Agusto & Co notes STFN LTFN
positively that the Company has nearly
4.0
halved the outstanding receivables amount 3.4
after year-end, with funds withdrawn from
3.0
the Charged Escrow Account (CEA) - an
account opened and funded by NNPC to be
2.0
used to offset any past due invoices7.
1.1
1.0 0.8
As at 31 December 2018, GEL’s long term 1.0
assets stood at ₦20.6 billion (2017: ₦21.3
billion) when compared to its long term funds 0.0
of ₦21.7 billion – comprising equity (54%) 2019 2018 2017 2016
(Unaudited)
and long-term borrowings (46%), thus -1.0 -0.6
-0.7
resulting in working capital available of ₦1.1 -1.1
-1.2
billion. The available working capital was just -2.0
sufficient to cover STFN, leaving a working
capital surplus of ₦0.3 billion as at the same date, which we consider satisfactory.
The unaudited accounts for the twelve months ended 31 December 2019 showed that the Company’s spontaneous
financing of ₦4.9 billion was insufficient to cover working assets of ₦5.9 billion, resulting in a STFN of ₦1.1 billion.
As at the same date, GEL’s long term funds (buoyed by the bond proceed) of ₦23.3 billion was adequate to cover
the long-term assets of ₦19.9 billion, leaving a working capital of ₦0.8 billion, which was sufficient to cover the
STFN. Consequently, GEL recorded a working capital surplus of ₦2.4 billion as at the end of 2019. Going forward,
we reckon that for GEL Utility to sustain the current financing structure and adequacy of working capital, it needs
to rein in on receivables from sales contracts with the off-taker to prevent the STFN from escalating.
In our opinion, GEL’s working capital is adequate.
7
Based on the Power Purchase Agreement (PPA) with NNPC, payment for electricity supply is 45 days after the receipt of invoice
9 2019 Corporate Rating ReportGEL Utility Limited
LEVERAGE
The Company’s total liabilities, which stood at ₦18.5 billion as at 31 December 2018, comprised non-interest
bearing liabilities and interest-bearing liabilities with the latter accounting for over two-thirds of the value. Loans
from a commercial bank in Nigeria and other borrowings from the Company’s international partner 8 constituted
the bulk of the interest-bearing liabilities during the period under review. As at the same date, GEL’s non-interest
bearing liabilities were mainly an unremitted value-added tax on sales and other payables9.
As at FYE 2018, GEL’s total assets of ₦27.7 billion was funded by total liabilities (67%) and equity (33%), which we
considered a satisfactory equity cushion. Over the last five years, the Company’s equity position has been supported
by the growing deposits10 from shareholders for new shares. Although the Company remains committed to
converting these balances to share capital in the near term, its equity position could be adversely impacted should
the conversion fail to materialise.
The Company obtained a new ₦280 million11 term loan from First Bank of Nigeria Limited (FBN) in November 2018
to finance the construction a second diesel Figure 5: Interest Coverage and Interest Expense to Sales Ratio
line and other associated facilities.
Notwithstanding, GEL Utility Limited’s 6.0 5.6 45.0%
interest-bearing liabilities dropped by 15% to 38.4%
40.0%
₦12.5 billion as at 31 December 2018 after the 5.0
31.7% 35.0%
Company part liquidated existing foreign 29.3%
currency-denominated loans. Agusto & Co 4.0 3.7 30.0%
notes positively that GEL Utility has refinanced 3.0 25.0%
a significant portion of the foreign currency 3.0
20.0%
loan exposure with the proceeds from the 19.0%
2.0 1.7 15.0%
bond issuance12. We expect the recent loan
consolidation to have little or no impact on 10.0%
GEL’s gross debt as the bond’s coupon and 1.0
5.0%
principal repayment will come from the
Company’s operating cash flow. 0.0 0.0%
2019 2018 2017 2016
(Unaudited)
Although the Company’s interest expense in
the financial year ended 31 December 2018 declined by 40% in absolute terms, cumulative interest expense to
sales ratio over the last three-years (2016 – 2018) of 26.7% is considered high in our opinion. Furthermore, GEL’s
interest expense based on the unaudited accounts for the year ended 31 December 2019, which was significantly
impacted by the bond issue cost, more than doubled to push the interest expense to sales ratio to 38.4% and the
8
GEL Utility Limited obtained a ₦3.4 billion 8-years loan from General Electric (GE) International in 2013 to finance its plant construction
9
Other creditors and accruals include a pass-through amount to be collected from the NNPC on behalf the NGC for purchase of gas to fuel power plants
used to propel the gas turbines based on the PPA
10
The Company’s deposit for share balances stood at ₦3.3 billion as at 31 December 2019
11
The three-year term loan was at 26% interest rate per annum with maturity date being November 2021
12
GEL Utility Limited’s special purpose vehicle (GEL Utility Funding SPV) issued a ₦13 billion 15-year 15.15% Series 1 Senior Guaranteed Fixed Rate
Infrastructure Bond in August 2019 to refinance existing bank loan and fund other capital expenditure
10 2019 Corporate Rating ReportGEL Utility Limited
once satisfactory interest coverage of about 3.8 times in 2018 to 1.7 times.
The Company’s total liabilities as at 31 December 2019 (unaudited) showed a 9% increase to ₦13.6 billion after
we adjusted bond proceeds previously recognised as intercompany loan in the Company’s books as long term
borrowings in line with the nature of the transaction, thus reinforcing our opinion on the actual impact of the loan
substitution on GEL’s overall leverage.
In our view, GEL Utility Limited’s leverage is high.
OWNERSHIP, MANAGEMENT & STAFF
As at 31 December 2018, GEL Utility Limited’s issued and fully paid-up share capital stood at ₦27.3 million while
the amount deposited by the existing Figure 7: Breakdown of GEL’s Shareholding Structure as at 31 December 2018
shareholders for the Company’s shares
during the same period was ₦3.3 billion.
GEL Utility is owned by two institutional Genesis Power &
Energy Solutions Engro Energy
investors – Genesis Power & Energy Limited
Nigeria Limited
Solutions Nigeria Limited (55%) and Engro 55% 45%
Energy Limited (45%) with the former
being the majority shareholder as at 31
December 2018 after it acquired the units
of shares previously held by Christley Source: GEL Utility 2018 Annual Report
Nigeria Limited13. Genesis Power & Energy
Figure 6: Breakdown of Deposit for Shares as at 31 December 2018
Solutions Nigeria Limited contributed the
highest to the deposit for share balances
with 52% while Engro Energy Limited Genesis Power & Engro Energy
Energy Solutions Limited
accounted for the remainder. While we Nigeria Limited 48%
note management’s willingness to convert 52%
these balances to share capital within the
shortest possible time, it is important to
highlight that the shareholders are
typically not under any legal or
contractual obligation to do so and could Source: GEL Utility 2018 Annual Report
withdraw their funds at any time without
recourse to GEL Utility.
GEL Utility has a six-member Board of Directors comprising four Non-Executive Directors and two Executive
Directors. Mr Akinwole Omoboriowo II – who represents Genesis Energy Limited doubles as the Chairman and
13
Christley Nigeria Limited is a former shareholder of GEL Utility but transferred its 33% equity stake to Genesis Power & Energy Solutions Nigeria
Limited in February 2018
11 2019 Corporate Rating ReportGEL Utility Limited
Chief Executive Officer while Engr Simon Shaibu is the Managing Director responsible for business origination and
growth of the Company following the resignation of the erstwhile MD (Ms Doyin Adele-Fadipe). Subsequent to FYE
2018, Mr James Fasaye and Prince Arthur Eze both resigned from the Board effective 11 Mrach 2019, while Mr
Ahsan Zarfar Syed was appointed as Executive Director representing Genesis Energy Limited. Furthermore, Mr
Shaikh Shamsuddin Ahmed also resigned his position effective 1 August 2019. The fusion of the role of the
Chairman and Chief Executive Officer raises concern over the independence and oversight function of the Board
over the management team.
The Company’s executive management team comprises five members, with Engr Simon Shaibu as the Managing
Director responsible for business origination and expansion. He is supported by three other senior management
staff who in our view are qualified personnel and have extensive experience in the Nigerian power sector. As at 31
December 2018, GEL Utility’s total staff strength under the current outsourced arrangement stood at 30 persons.
GEL’s average costs per employee was ₦10.1 million, while net earnings per staff at ₦51.8 billion was 5.1 times
the average cost per employees, which we consider to be an indication of good staff productivity.
Executive Management Team
Akinwole Omoboriowo II is the Chairman and Chief Executive Officer of GEL Utility Limited. Mr Omoboriowo has
over 20 years working experience in the Oil & Gas and Power sectors in Africa. He held several executive
management positions over this period, some of which include – Executive Director of Christley Petroleum Limited,
the Managing Director of Besse- Oil & Services Limited and Chief Executive Officer & Co-Founder of PPI. He is the
Vice-Chairman of Vatternfields Utility Ltd - a Utility Company currently managing & operating PrePaid & PostPaid
Revenue Collection initiatives in West Africa. Mr Omoboriowo sits on the Board of several companies including
Walters Power Africa14, Nagarjuna-Christley Fuels Ltd15, Avi Alliance Ltd16, Alliance Energy Sao Tome Limited
amongst other international corporations. He graduated with a Bachelor’s degree in Economics from the University
of Jos in 1993 and he is an alumnus of the London Business School, where he acquired specialist training in
Electricity Pricing & Modelling in 2006. He also holds a Post-Graduate Diploma in Strategy & Innovation from
Oxford University’s SAID Business School, U.K.
Simon Shaibu is the Managing Director and Chief Executive Officer of GEL Utility Limited. He has over 20 years’
experience in oil and gas and power generation industries. Prior to his appointment as MD/CEO in 2018, Mr. Shaibu
was the Vice President responsible for Technical and Operations in the Genesis Energy Group which he joined in
2014. Prior to joining GEL, Mr. Shaibu worked as Maintenance Manager and O&M Engineer between 2007 and
2014 at AES Arlington USA. He has worked in Saipem S.A, Bouygues Offshore, Ponticelli in different capacities
including Plant Manager, Mechanical Engineer, Turbine Technician amongst others. Mr. Shaibu obtained a Higher
National Diploma in Mechanical Engineering from Kwara State Polytechnic in 1992 and a post graduate diploma
in Project Management from the Federal University of Technology Owerri. He also holds a Master’s Degree in
Leading Innovation and Change from York St John University, UK.
14
A British Virgin Island company Co-Owned by GEL and a US-Based Company Owned by a Former Governor of the State of Oklahoma- David Walters
15
A company now at advanced stage of deploying renewable energy investments in Ethanol production & supply in Nigeria
16
An airline company whose Sister entity is the GSA to Delta Airlines in Ghana, Liberia, Benin Republic, Sierra Leone, amongst others now being
developed.
12 2019 Corporate Rating ReportGEL Utility Limited
James Fasaye Boboye, is the Chief Financial Officer of GEL Utility Limited. He has over 20 years accounting
experience in Manufacturing, Service and Power and Energy sector. Mr. Fasaye holds a Higher National Diploma in
Accounting and holds a post graduate diploma in Financial Management from the University of Ado Ekiti. He has a
Master of Business Administration (MBA) in Financial Management from Federal University of Technology, Owerri.
Mr. Fasaye is Associate member of the Institute of Chartered Accountant of Nigeria (ICAN); Associate member,
Chartered Institute of Taxation of Nigeria (CITN) and SAP B1 trained Professional.
Table 3: Other members of GEL’s management team
Names Position
Mr James Fasaye Boboye Chief Financial Officer
Mr Adamu Abubakar Chief Operating Officer
Mr Haseeb Shaukat Director, Technical
Ms Amina Onifade Director, Projects Development & Legal Services
13 2019 Corporate Rating ReportGEL Utility Limited
OUTLOOK
The power sector in Nigeria is plagued by unfavourable government regulation and decrepit power infrastructure
in the country. This is in addition to vulnerability to fluxes in the exchange rate from import of heavy-duty power
equipment and constrained access to credit from financial institutions given the weak financial condition of
operators, who are burdened by soaring receivables from unpaid electricity sold to consumers, making investments
in the sector less appealing. Although we recognise that the implementation of the “eligible customer rule” 17
continues to offer a silver lining to electric power business in Nigeria, its success is dependent on a myriad of
factors including the willingness of the generation companies to invest in independent distribution networks and
ability to negotiate favourable tariff harmonisation with the distribution companies.
Despite the huge growth potentials in both the upper and mass-market segments in Nigeria, IPPs continued to
underperform as unreflective tariffs continue to hamper their ability to grow revenue. GEL Utility Limited posted
revenue of ₦5.1 billion in FYE 2018 which was very similar to the 2019 unaudited figure to reflect the limiting
fixed supply volume and unit price of the current PPA contract on the Company’s ability to increase revenue. We
expect GEL’s profitability to remain flat in the near term but forecast significant improvement in earnings from the
successful implementation of management’s strategic plan to expand the Company’s energy generation capacity
and clientele through the development of more efficient renewable energy projects in major cities across the
country.
In light of the recent issuance of a long-term infrastructure bond to refinance existing bank loans as well as support
planned expansion, we expect GEL Utility’s high leverage to persist in the near to medium term. Barring unforeseen
cancellation of the current PPA or refusal of the off-taker to honour payment obligation under the PPA, we expect
the Company’s working capital and operating cash flow to remain satisfactory in the near term.
Overall, we expect the Federal Government’s renewed push for power generation and distribution in the country
to ease the regulatory obstacles in the industry and attract the much-needed investments to drive volume and
stability of energy supply in the country, which will in turn translate to higher earnings and improved profitability
for GEL Utility Limited.
Based on the aforementioned, we have attached a stable outlook to GEL Utility Limited.
17
The “eligible customer rule” allows generation companies to by-pass the inefficiencies of the transmission and distribution network in supplying
electricity to qualifying customers
14 2019 Corporate Rating ReportGEL Utility Limited
FINANCIAL SUMMARY
GEL UTILITY LIMITED
STATEMENT OF FINANCIAL POSITION 31-Dec-19 31-Dec-18 31-Dec-17
Unaudited
₦'000 ₦'000 ₦'000
Assets
Idle Cash 2,365,635 8.4% 391,721 1.4% 406,038 1.5%
Marketable Securities & Time Deposits
Cash & Equivalents 2,365,635 8.4% 391,721 1.4% 406,038 1.5%
FX Purchased for Imports - - - - - -
Advance Payments and Deposits to Suppliers - - - - - -
Stocks - - - - - -
Trade Debtors 4,824,578 17.1% 5,664,973 20.4% 4,371,564 16.0%
Due from Related Parties - - - - - -
Other Debtors & Prepayments 1,114,642 4.0% 1,069,371 3.9% 1,165,877 4.3%
Total Trading Assets 5,939,220 21.1% 6,734,344 24.3% 5,537,441 20.3%
Investment Properties - - - - - -
Other Non-Current Investments - - - - - -
Property, Plant & Equipment 19,434,181 68.9% 20,219,319 73.0% 21,018,126 77.1%
Spare Parts, Returnable Containers, Etc. 470,459 1.7% 361,714 1.3% 316,284 1.2%
Goodwill, Intangibles & Other L T Assets - - - - - -
Total Long-Term Assets 19,904,640 70.6% 20,581,033 74.3% 21,334,410 78.2%
Total Assets 28,209,495 100.0% 27,707,098 100.0% 27,277,889 100.0%
Growth 1.8% 1.6% -3.7%
Liabilities & Equity
Short Term Borrowings - - - - - -
Current Portion of Long Term Borrowings 2,613,013 9.3% 4,764,227 17.2% 3,818,188 14.0%
Long-Term Borrowings 10,997,458 39.0% 7,740,066 27.9% 10,857,061 39.8%
Total Interest Bearing Liabilities (TIBL) 13,610,471 48.2% 12,504,293 45.1% 14,675,249 53.8%
Trade Creditors 1.4% 3.1% 4.0%
395,479 859,331 1,097,346
Due to Related Parties
Advance Payments and Deposits from - - - - - -
Customers
Other Creditors and Accruals 4,483,721 15.9% 5,141,882 18.6% 3,886,275 14.2%
Taxation Payable - - - - - -
Dividend Payable - - - - - -
Deferred Taxation - - - - - -
Obligations Under Unfunded Pension Schemes - - - - - -
Minority Interest - - - - - -
Redeemable Preference Shares - - - - - -
Total Non-Interest Bearing Liabilities 4,879,200 17.3% 6,001,213 21.7% 4,983,621 18.3%
Total Liabilities 18,489,671 65.5% 18,505,506 66.8% 19,658,870 72.1%
Share Capital 27,273 0.1% 27,273 0.1% 27,273 0.1%
Share Premium - - - - - -
Irredeemable Debentures - - - - - -
Revaluation Surplus - - - - - -
Other Non-Distributable Reserves 3,318,136 11.8% 3,318,136 12.0% 3,307,310 12.1%
Revenue Reserve 6,374,415 22.6% 5,856,183 21.1% 4,284,436 15.7%
Shareholders' Equity 9,719,824 34.5% 9,201,592 33.2% 7,619,019 27.9%
Total Liabilities & Equity 28,209,495 100.0% 27,707,098 100.0% 27,277,889 100.0%
15 2019 Corporate Rating ReportGEL Utility Limited
GEL UTILITY LIMITED
STATEMENT OF COMPREHENSIVE INCOME 31-Dec-19 31-Dec-18 31-Dec-17
Unaudited
₦'000 ₦'000 ₦'000
Turnover 5,151,001 100.0% 5,136,881 100.0% 5,131,838 100.0%
Cost of Sales (1,968,185) -38.2% (1,955,457) -38.1% (1,924,804) -37.5%
Gross Profit 3,182,816 61.8% 3,181,424 61.9% 3,207,034 62.5%
Other Operating Expenses (928,289) -18.0% (935,334) -18.2% (700,812) -13.7%
Operating Profit 2,254,527 43.8% 2,246,090 43.7% 2,506,222 48.8%
Other Income/(Expenses) 242,408 4.7% 283,548 5.5% 291,285 5.7%
Profit Before Interest & Taxation 2,496,935 48.5% 2,529,638 49.2% 2,797,507 54.5%
Interest Expense (1,979,142) -38.4% (976,361) -19.0% (1,625,305) -31.7%
Profit Before Taxation 517,793 10.1% 1,553,277 30.2% 1,172,202 22.8%
Tax (Expense) Benefit - - - - - -
Profit After Taxation 517,793 10.1% 1,553,277 30.2% 1,172,202 22.8%
Non-Recurring Items (Net of Tax) - - - - - -
Minority Interests in Group Pat - - - - - -
Profit After Tax & Minority Interests 517,793 10.1% 1,553,277 30.2% 1,172,202 22.8%
Dividend - - - - - -
Profit Retained for The Year 517,793 10.1% 1,553,277 30.2% 1,172,202 22.8%
Scrip Issues - - - - - -
Other Appropriations/ Adjustments 440 - 18,470 - 35,572 -
Profit Retained B/Fwd 5,856,183 4,284,436 3,076,662
Profit Retained C/Fwd 6,374,415 5,856,183 4,284,436
ADDITIONAL INFORMATION 31-Dec-19 31-Dec-17 31-Dec-17
Unaudited
Staff costs (₦'000) 302,127 298,448 176,752
Average number of staff 30 30 30
Staff costs per employee (₦'000) 10,071 9,948 5,892
Staff costs/Turnover 5.9% 5.8% 4.1%
Capital expenditure (₦'000) 552,696 471,350 81,679
Depreciation expense - current year (₦'000) 1,256,595 1,270,157 1,262,133
(Profit)/Loss on sale of assets (₦'000) - - -
Number of 50 kobo shares in issue at year end ('000) 54,546 54,546 54,546
Market value per share of 50 kobo (year-end) 100 100 100
Market capitalisation (₦'000) 54,546 54,546 54,546
Market/Book value multiple 1 1 1
Non-operating assets at balance sheet date (₦'000) - - -
Market value of tradeable assets (₦'000) - - -
Revaluation date - Investment properties - - -
Revaluation date - Other properties - - -
Average age of depreciable assets (years) 2 2 2
Sales at constant prices - base year 1985 (₦'000) 14,105 15,751 17,537
Auditors N/A PWC PWC
Opinion - CLEAN CLEAN
16 2019 Corporate Rating ReportGEL Utility Limited
CONSOLIDATED STATEMENT OF CASHFLOWS 31-Dec-19 31-Dec-18 31-Dec-17
Unaudited
₦'000 ₦'000 ₦'000
OPERATING ACTIVITIES
Profit after tax 517,793 1,553,277 1,172,202
ADJUSTMENTS
Interest expense 1,979,142 976,361 1,625,305
Minority interests in Group PAT - - -
Depreciation 1,256,595 1,270,157 1,262,133
(Profit)/Loss on sale of assets - - -
Other non-cash items 440 29,296 46,399
Potential operating cash flow 3,753,970 3,829,091 4,106,039
INCREASE/(DECREASE) IN SPONTANEOUS FINANCING:
Trade creditors (463,852) (238,015) 516,181
Due to related parties - - -
Advance payments and deposits from customers - - -
Other creditors & accruals (658,161) 1,255,607 380,741
Taxation payable - - -
Deferred taxation - - -
Obligations under unfunded pension schemes - - -
Minority interest - - -
Cash from (used by) spontaneous financing (1,122,013) 1,017,592 896,922
(INCREASE)/DECREASE IN WORKING ASSETS:
FX purchased for imports - - -
Advance payments and deposits to suppliers - - -
Stocks - - 119,981
Trade debtors 840,395 (1,293,409) 618,811
Amounts Due from related parties - - -
Other debtors & prepayments (45,271) 96,506 (949,849)
Cash from (used by) working assets 795,124 (1,196,903) (211,057)
CASH FROM (USED IN) OPERATING ACTIVITIES 3,427,081 3,649,780 4,791,904
RETURNS TO PROVIDERS OF FINANCING
Interest paid (1,979,142) (976,361) (1,625,305)
Dividend paid - - -
CASH USED IN PROVIDING RETURNS ON FINANCING (1,979,142) (976,361) (1,625,305)
OPERATING CASH FLOW AFTER PAYMENTS TO PROVIDERS OF 1,447,939 2,673,419 3,166,599
FINANCING
Non-recurring items (net of tax) - - -
CASH FROM (USED IN) NON-RECURRING ACTIVITIES - - -
INVESTING ACTIVITIES
Capital expenditure (552,696) (471,350) (81,679)
Sale of assets - - -
Purchase of other long term assets (net) (108,745) (45,430) (202,561)
Sale of other long term assets (net) - - -
CASH FROM (USED IN) INVESTING ACTIVITIES (661,441) (516,780) (284,240)
FINANCING ACTIVITIES
Increase/(Decrease) in short term borrowings - - (1,107,143)
Increase/(Decrease) in long term borrowings 1,106,178 (2,170,956) (2,067,460)
Proceeds of shares issued - - -
CASH FROM (USED IN) FINANCING ACTIVITIES 1,106,178 (2,170,956) (3,174,603)
CHANGE IN CASH INC/(DEC) 1,903,503 (3,490) (281,417)
OPENING CASH & MARKETABLE SECURITIES 391,721 406,038 698,282
CLOSING CASH & MARKETABLE SECURITIES 2,284,396 391,720 406,038
17 2019 Corporate Rating ReportGEL Utility Limited
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31-Dec-19 31-Dec-18 31-Dec-17
Unaudited
₦'000 ₦'000 ₦'000
Operating cash flow (OCF) 3,427,081 3,649,780 4,791,904
Less: Returns to providers of finance (1,979,142) (976,361) (1,625,305)
OCF after returns to providers of finance 1,447,939 2,673,419 3,166,599
Non-recurring items - - -
Free cash flow 1,447,939 2,673,419 3,166,599
Investing activities (661,441) (516,780) (284,240)
Financing activities 1,106,178 (2,170,956) (3,174,603)
Change in cash 1,892,676 (14,317) (292,244)
PROFITABILITY
PBT as % of Turnover 10% 30% 23%
Return on equity 5% 18% 17%
Sales growth 0.3% 0.1% 20.5%
CASH FLOW
Interest cover (times) 1.7 3.7 2.9
Principal payback (years) - 16.7 18.1
WORKING CAPITAL
Working capital need (days) 75 52 39
Working capital deficiency (days) - - -
LEVERAGE
Interest bearing debt to Equity 140% 136% 193%
Total debt to Equity 190% 201% 258%
IBD net of cash and Equiv. as a % of Equity without rev. 116% 132% 187%
Net Debt/Avg Total Assets Exc. Cash and Rev. Surplus 97% 101% 99%
18 2019 Corporate Rating ReportGEL Utility Limited
RATING DEFINITIONS
Aaa This is the highest rating category. It indicates a company with impeccable financial condition
and overwhelming ability to meet obligations as and when they fall due.
Aa This is a company that possesses very strong financial condition and very strong capacity to
meet obligations as and when they fall due. However, the risk factors are somewhat higher
than for Aaa obligors.
A This is a company with good financial condition and strong capacity to repay obligations on a
timely basis.
Bbb This refers to a company with satisfactory financial condition and adequate capacity to meet
obligations as and when they fall due.
Bb This refers to a company with satisfactory financial condition but capacity to meet obligations
as and when they fall due may be contingent upon refinancing. The company may have one or
more major weakness (es).
B This refers to a company that has weak financial condition and capacity to meet obligations in
a timely manner is contingent on refinancing.
C This refers to a company with very weak financial condition and weak capacity to meet
obligations in a timely manner.
D In default.
Rating Category Modifiers
A "+" (plus) or "-" (minus) sign may be assigned to ratings from ‘Aa’ to ‘C’ to reflect comparative position within the rating category. Therefore, a rating
with + (plus) attached to it is a notch higher than a rating without the + (plus) sign and two notches higher than a rating with the - (minus) sign.
19 2019 Corporate Rating ReportGEL Utility Limited
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20 2019 Corporate Rating Report21
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