The Pakistan Credit Rating Agency Limited
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Muhammad Hassan

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PACRA Maintains Entity Ratings of Habibullah Coastal Power Company (Pvt.) Limited

Rating Type Entity
Action Maintain Initial
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

The ratings of Habibullah Coastal Power Company (Pvt.) Limited (Habibullah Coastal), an established IPP, reflect its stable business profile emanating from the demand risk coverage under Power Purchase Agreement signed between power purchaser and the company. Meanwhile, the Implementation Agreement provides sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. Habibullah Coastal has a Gas Supply Agreement with Sui Southern Gas Company (SSGC) for 20 years, ending in Sep 2019. The company can apply for extension of GSA in no less than 2 years or more than 18 months prior to expiry of GSA. The company was in arbitration with SSGC for the recovery of liquidated damages it incurred under the PPA, including consequential losses, due to SSGCL failure to supply gas and the final decision has been awarded in favour of HCPC in April 2018. One time impact of this decision on the profitability is yet to be seen. The company’s project debt has been paid and it only borrows to meet its short term needs or for BMR purposes. Consequently, the company continues to enjoy sound coverages, underpinned by leveraged structure. However, like other IPPs, its financial profile remains dependent on the payment behaviour of the power purchaser.

Although well-managed, in-house O&M activities expose the company to operational risk; thus upholding strong operational performance in line with agreed performance levels would remain a key driver of the ratings. Meanwhile, extension in GSA with SSGC and final settlement of liquidated damages with SSGC are critical and success here would beneficially impact the ratings.

About the Entity
Habibullah Coastal was established in 1995 as an independent power producer. The company is operating a combined cycle power plant with a net capacity of 129MW. Habibullah Coastal’s plant commenced operations in 1999. It has signed a 30 years Power Purchase Agreement with the power purchaser of which 18 years has lapsed. The Ultimate Benificiary of the Company is M/S Ithaca Capital Limited which is a privately held investment holding company and, through its subsidiary, is a manager of third party private equity. Ithaca Capital is owned by Mr. Saad Faruqui - a seasoned business man with main interests in Transportation, Security and technology ventures.

Overall control vests in five member board. Mr. Saad Saeed Faruqui is the Chief Executive officer of the company. Other board members are seasoned professionals with diverse experienced background. He is assisted by an able management team.

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.