Karachi, September 27, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Nishat Chunian Power Limited (NCPL) at ‘A+/A-2’ (Single A Plus/A-Two). Long-term rating of ‘A+’ signifies good credit quality; protection factors are adequate. Risk is modest but may vary with possible changes in the economy. Short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are sound. Access to capital market is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating action was announced on May 16, 2022.
NCPL has been operating a 200-Megawatt (MW) RFO-based power plant since 2001. The plant is situated in District Kasur, Punjab. Assigned ratings takes into account the 25-year power purchase agreement with CPPA-G, which will expire in 2035 while ‘take or pay’ arrangement alleviates off-take risk. In addition, ‘Implementation Agreement’ provides sovereign guarantee for cash flows, contingent upon adherence to stipulated performance benchmarks. Ratings also draw comfort from the company’s association with Nishat Chunian Group; one of the leading groups in Pakistan with sizable financial strength and presence in textile and power generation. An experienced in-house team is managing operations and maintenance (O and M) of the plant and has demonstrated a satisfactory operating track record. NCPL procures fuel from different local vendors whereas, the price risk is mitigated since the cost is a pass-through item as per the tariff, subject to achieving the PPA stipulated parameters. During FY23, the company ceased to be the subsidiary of Nishat Chunian Limited (NCL) and its shares were transferred amongst members of NCL.
During FY23, NCPL’s net sales were reported lower on account of decline in power dispatched to the CPPA-G as a result of lower demand stemming from overall economic downturn. However, as a result of higher proportion of capacity purchase price component, gross margins have improved notably. Similarly, net profitability was also recorded higher in the outgoing year. Post signing PPA Amendment Agreement in October 2021, NCPL received settlement of outstanding old receivables in FY22. However, circular debt issue has continued to stress short-term liquidity in the ongoing year, as witnessed in increase in overdue receivables beyond 6 months’ period, as of August 2023. With growth in profitability and lower outstanding short-term loans, cash flow coverages improved by end-FY23. Financial risk profile derive comfort from long-term debt free balance sheet.
Gearing ratio and leverage were reported lower and are expected to remain manageable, going forward as well. Given unfavorable position in merit order list due to relatively higher cost of generation amidst addition of new efficient and cheaper power projects in country’s generation capacity base, NCPL’s dispatch is likely to be impacted in the ongoing year. Moreover, country’s power demand is expected to decrease owing to current macroeconomic challenges including inflation, power prices hikes and slower economic growth.
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: https://www.vis.com.pk/
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