The Pakistan Credit Rating Agency Limited
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Aisha Khalid

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PACRA Maintains Entity Ratings of LalPir Power Limited

Rating Type Entity
Action Maintain Maintain
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect the regulated structure of Lalpir's business; whereby revenues and cashflows are guaranteed by the sovereign government given adherence to agreed operational parameters. On standalone basis, reduced delta loss between required and actual efficiency levels has helped in better operational performance. However, negative delta, though reducing, remained a drag. Business risk is considered low exhibited by demand risk coverage under Power Purchase Agreement signed between Power purchaser and the company. Receivable days have shown increase in FY16, yet the entity managed to sustain its financial strength.

Upholding operational performance in line with agreed performance levels would remain a key rating driver. Accumulation of debt to finance CAPEX - the coal conversion project and/or fresh investment in new power project – may impact financial risk profile of the company. Meanwhile, any significant increase in overdue receivables, as a result of rising circular debt, may negatively impact the ratings.

Conversion of plant to coal and participation in planned investment by parent - Nishat Group - to set up a new 660MW coal power plant are at nascent stage. Meanwhile, related CAPEX would depend on finalization of terms with the power purchaser as well as with NEPRA - the regulator. The management expects any material progress in near future is less likely as finalization of terms with the power purchaser may take time.

About the Entity
Lalpir Power Limited (Lalpir) was established for electricity generation under the power policy 1994 as an Independent Power Producer (IPP). The plant, with a total project cost of USD 347mln, is located at Mehmood Kot, near Muzaffargarh (Punjab) and has an installed capacity of 362MW. The project has a remaining life of 12 years (ending in 2028) under the PPA. Lalpir is listed on Pakistan Stock Exchange.

The principal sponsors of the company are Nishat Group (45%) and City Schools (Private) Limited (18%). Majority of the board members represent Nishat Group and are group executives. Mr. Hassan Mansha, heading the Nishat Group's interest in power sector, is the chairman of the board. The board includes two executive directors Mr. Aurangzeb Firoz, CEO of the company and Mr. Khalid Qadeer Qureshi, CFO of the company.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.