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VIS Upholds Strong Ratings for FFBL Power Company Amid Economic Adjustments

Karachi, VIS Credit Rating Company Limited (VIS) has reaffirmed its entity ratings for FFBL Power Company Limited (FPCL) at ‘AA-/A-1’ (Double AA Minus/A-One), signifying high credit quality and strong certainty in timely payment amidst changing economic conditions.

According to VIS Credit Rating Company Limited, the long-term ‘AA-‘ rating indicates FPCL’s high credit quality with strong protection factors, although these are subject to slight variations due to economic conditions. The short-term ‘A-1’ rating reflects the company’s high certainty of timely payment, supported by excellent liquidity factors and fundamental protections. The outlook on the assigned rating remains ‘Stable’, consistent with the previous rating action announced on October 27, 2022.

FPCL, a subsidiary of Fauji Fertilizer Bin Qasim Limited (FFBL) and part of the Fauji Foundation (FF) conglomerate, operates a 118 Megawatt coal-based power plant. This plant not only generates power and steam for FFBL’s fertilizer complex but also exports power to K-Electric (KE). The rating takes into account the 30-year power purchasing and steam supply agreements FPCL has with FFBL and KE, set to expire in 2047. Despite a ‘take and pay’ arrangement with KE, off-take risk is considered moderate due to FPCL’s low cost of power generation and high merit order position.

FPCL faced challenges during the year, including a plant shutdown from March to August 2023 due to technical issues, but these were mitigated by insurance coverage. The company sources coal both internationally and locally and is working towards reducing its reliance on imported coal.

Financially, FPCL saw an increase in net revenue during CY23, attributed to revised tariff indexation and higher capacity payments contributions. Despite increased financial charges, the company’s bottom line improved in CY22 and HY23, along with a rise in funds from operations due to higher income from core operations. Debt coverages remained stable, but gearing increased slightly by the end of HY23 due to higher utilization of finance facilities for coal procurement. Trade debts increased significantly, mostly from the parent company, but their aging profile remained manageable.

FPCL also made strategic investments in Fauji Foods Limited (FFL), anticipating a turnaround in the current year. Looking ahead, FPCL’s leverage indicators are expected to decline as it repays long-term financing, although expansion in equity base may be limited due to the sponsors’ expectations for higher dividend payouts. The ratings are sensitive to changes in the financing of parent company receivables, investment earnings, and the company’s dividend payout policies.

For more information on this rating announcement, interested parties can contact VIS Credit Rating Company Limited at the provided contact details.

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