Lahore, October 01, 2021 (PPI-OT): Master Group, pioneers of foam products, has set up a 52.8MW wind power plant – Master Wind Energy Limited. Plant achieved COD on14th October 2016, the project is established under the Policy for Development of Renewable Energy for Power Generation, 2006 which offers a guaranteed internal rate of return, cost indexation, and pass through tariff structure. Working capital requirements are fulfilled through in-house adequate cash flow generation. Free cash flows of the Company are in a comfortable position to make debt repayments. Master Wind has repaid ~46% of its debt on time without availing benefit of forbearance period, facet of strong financial profile and working capital management.
The company’s reserve build-up mechanism, DSRA fully funded through cash and PSRA funded via SBLC providing coverage of more than one time on its financial obligations till maturity, provides comfort to the ratings. Though, the company signed the MoU but the Master Agreement and EPA Amendment Agreement have not been executed yet with CPPA-G (on behalf of Government of Pakistan). The project revenues and cash flows are exposed to two main risks. First; wind risk. Under the upfront tariff regime, any variability in wind speeds is to be borne by the Company, due to which its cash flows may face seasonality. However, historical wind speeds provide comfort that Master Wind would be able to generate enough cash flows to keep its financial risk manageable.
Second; operational risk. Comfort is drawn from General Electric International Inc. – the O and M operator – having both international and local market experience. If the Company maintains its availability as per contract and is ready to deliver electricity to CPPAG, CPPA-G is liable to pay the whole tariff even in case of missed volumes. The Government of Pakistan has provided a sovereign guarantee against dues from CPPA-G.
Upholding operational performance in line with agreed performance levels is important. Improving, indeed aligning, build-up of DSRA from internal sources, receipt pattern from power purchaser, debt repayment behaviour and liquidity cushion would impact the directions of ratings. External factors such as any adverse changes in the regulatory framework and weakening of financial profile may impact negatively.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com