Karachi, April 23, 2019 (PPI-OT): VIS Credit Rating Company Limited (VIS) (formerly JCR-VIS Credit Rating Co. Ltd.) has assigned initial entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Engro Powergen Qadirpur Limited (EPQL). The long term rating of ‘AA-’ signifies high credit quality; protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. The short term rating of ‘A-1’ signifies high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’.
EPQL has been operating a 217.3 MW gas based thermal combined cycle power plant near Qadirpur, District Ghotki, Sindh since 2010. Engro Energy Limited (EEL), a subsidiary of Engro Corporation Limited (Engro), has majority shareholding in the company with 69% ownership while remaining stake is held by general public. EPQL has outsourced its operations and maintenance (O and M) services to Engro Energy Services Limited (EESL). The assigned ratings draw comfort from significant experience of EEL/Engro in executing similar projects. Moreover, ratings incorporate sound operational track record of the O and M contractor, EESL.
Assessment of business risk profile incorporates low off-take risk due to take or pay tariff awarded whereby EPQL will be eligible for guaranteed capacity payments. Fuel Supply and Price Risks are limited due to long-term supply contract and cost pass through mechanism built in the tariff. Performance of the plant has remained compliant with normative parameters as laid down in the power purchase agreement (PPA). As projected in the implementation agreement, EPQL is now facing gas curtailment from Qadirpur gas field as it is depleting and has made its plant available on mixed mode i.e. comingling of gas and high speed diesel from September 7, 2018 onwards. Terms of the contract also allow conversion to alternate fuel; profitability and cash flows will not be impacted given that fuel cost component and conversion cost are pass-through.
Financial risk profile draws support from strong guaranteed cash flows and satisfactory debt servicing ability. Cash flows are adequate for servicing outstanding debt obligations. However, persistence of circular debt may translate into some liquidity pressures. Leverage indicators stand within manageable limits. By end-2020, gearing levels are expected to decline with complete repayment of long term debt and increase in equity base. Going forward, improvement in liquidity profile with respect to circular debt and satisfactory plant operation post conversion to alternate fuel will be key rating sensitivities.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: http://jcrvis.com.pk/