Analyst
Uswa Sikandar
uswa.sikandar@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains Entity Ratings of Chanar Energy Limited
Rating Type | Entity | |
Current (22-Nov-23 ) |
Previous (22-Nov-22 ) |
|
Action | Maintain | Maintain |
Long Term | BBB- | BBB- |
Short Term | A3 | A3 |
Outlook | Stable | Stable |
Rating Watch | Yes | Yes |
Chanar Energy Limited has a 22MW bagasse-based power plant which is adding renewable energy to the national grid. The IPP model is designed to create synergy and higher efficiency gains between IPP and sugar mill. Sustainable business profile of Chanar Energy emanates from the demand risk coverage under Energy Purchase Agreement signed with CPPA-G and ‘Bagasse supply and Steam Purchase Agreement’ with Chanar Sugar Mills Limited, a related entity. However, procurement of raw material, solely from the associated concern, Chanar Sugar Mills, poses constraints on generation capability. The main risk factor affecting the stability of return is the availability of bagasse at a price higher than the assigned fuel component, by NEPRA. However, NEPRA heard the petition for revision of tariff in October 2023 on behalf of all Cogen plants including Chanar Energy Limited and the company remains hopeful for the revision in the coming weeks. The revision has been proposed based on three options: support price of sugarcane, international coal price and CPI and after the revision of tariff, the company expects to remain available all year round subject to purchase of bagasse from the market. The ratings reflect company's credit quality and liquidity profile. Plant’s availability during last crushing season was reported at 30% (108 days). During FY23, the turnover was recorded at PKR 912mln (FY22: PKR 994 million) and 41,050 MW (FY22: 57,816 MW) of electricity was produced out of which 84% was provided to CPPA-G while 16% was provided to CSML. Confidence is drawn from availability of enough liquid funds due to timely recoveries from power purchaser to service upcoming debt installments. The company does not rely on any short-term credit lines. Company had a project debt of PKR 2,200mln repayable till Feb 2029 in 40 quarterly installments. The company has been making timely repayments of its due debt obligations through energy receivables and has repaid 19 installments thus far. The leverage is high in comparison to the equity base.
Rating Watch signifies the prevailing uncertainty pertinent to company’s financial muscles, and timely debt servicing. The ratings are dependent on Chanar Energy’s ability to sustain its business and financial profile; any deterioration in margins, leading to weak coverages and pressure on liquidity, will have a negative impact on ratings. Financial support from sponsors remains imperative in the long term.
About
the Entity
Chanar Energy was incorporated in 2014 as an independent power producer. It is operating a bagasse-based power plant with gross capacity of 22MW. Chanar Energy's plant commenced operations in Feb 2019. The company is majorly owned by Mr. Javed Ahmad Kayani and his family.
The four-member Board, comprising four members of Kayani family provides adequate guidance to the company. Mr. Javed Ahmad Kayani, the CEO of the company is supported by an able team.