PACRA Maintains Entity Ratings of Nishat Chunian Power Limited

The ratings reflect strong business profile of Nishat Chunian Power Limited (Nishat Chunian Power) emanating from the demand risk coverage under Power Purchase Agreement signed between CPPA-G (Central Power Purchasing Agency) and the company. Meanwhile, the Implementation Agreement provides sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. Nevertheless, delayed payments from the power purchaser remained a challenge. Despite higher receivable days the entity managed to sustain its financial strength. Nishat Chunian Power, with in-house Operations and Maintenance (O&M), has a well-experienced team and has been demonstrating satisfactory performance since 2015. Fuel supply risk is considered adequate as they procure from different suppliers with good credit terms; being managed since 2011. Although there are delays in payments from power purchaser, the company manages the impact by aligning the payments to fuel supplier with its receipts. This keeps working capital needs under check. Short term borrowing lines are available and mainly used to fund any short-fall in working capital requirements. As of March-19, short term lines utilization stood at 53%. Nishat Chunian Power continues to meet its availability (88%) and efficiency (45%) benchmarks. Given the liquidity situation, utilization is imputed to go up. Settlement of overdue receivables is crucial. The company has an outstanding long term debt of PKR 2,710mln as at end-June19, payable till June 2020. Sound financial profile of Nishat Chunian Group; the major sponsor, provides comfort to the ratings.
Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important. Accumulation of circular debt would pose threat to the company’s ability to continue with this practice. However, the management ably supported by sponsors’ remains committed to sustain improvement in management of commercial obligations and timely debt repayments.

About the Entity
Nishat Chunian Power was established in 2007 as an independent power producer (IPP) for the purpose of electricity generation. It began commercial operations in July 2010. Nishat Chunian Power is a subsidiary of Nishat Chunian Limited and is listed on Pakistan Stock Exchanges.Nishat Chunian Limited holds ~51% stake in the company – which in turn is equally owned by Nishat Group and Nishat Chunian Group, rest of shareholding lies with the Financial Institutions (26.51%), General Public (17.76%) and others (4.66%). Nishat Chunian Group is a leading conglomerate with interests in textile, energy, and entertainment sector.
Nishat Chunian Power's project cost comprised 20% equity and 80% debt. Long-term debt carries mark-up at the rate of 3M Kibor + 300bps, payable on quarterly basis. The outstanding principal at end-Jun19, will be repaid in four quarterly installments.
The Board of Directors (BoD) comprises nine members. One board member is a representative from Nishat Chunian Limited and one board member is a nominee from Allied Bank Limited. All the board members are seasoned professionals having interests in various sectors of the industry. Mr. Farrukh Ifzal, previously serving as the Managing Director, replaced Mr. Shahzad Saleem, spearheading the company since incorporation, as the CEO during the 4QFY19. The management team comprises qualified professionals possessing sufficient experience in power sector.