PACRA Maintains Entity Ratings of Sapphire Electric Company Limited
The ratings reflect strong business profile of Sapphire Electric Company Limited (Sapphire Electric) emanating from the demand risk coverage under Power Purchase Agreement signed between NTDC (through 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. The ratings incorporate low operational risk, a result of the performance of General Electric - the O&M operator. Primary fuel of the plant is Regasified Liquefied Natural Gas (RLNG) which is supplied by Sui Northern Gas Pipeline Limited (SNGPL). Thus fuel supply risk is considered low, pertaining to meaningful addition of RLNG in Pakistan’s fuel mix. 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. Moreover, lately Sapphire Electric has been repaying its debt repayments (Principal and Markup) on time without availing benefit of forbearance period and committed to continue this practice till maturity. Sapphire Electric has total long term debt of PKR 4,128mln as at end-Sept-18 payable till September 2020. The company's association with Sapphire Group 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.
Sapphire Electric was established in 2005 as an independent power producer (IPP), with gross capacity of 225MW, is operating under the Power Policy 2002. It began commercial operations in October 2010. Sapphire Electric is a subsidiary of Sapphire Fibres Limited (SFL). Sapphire Group owns (70%) stake in Sapphire Electric mainly through Sapphire Fibres Limited (68%), while remaining stake is owned by Xenel Saudi Arabia (20%), Meezan Bank (5%) and few high net worth individuals (5%).
Sapphire Electric 's project cost comprised 25% equity and 75% debt. Long-term debt carries mark-up at the rate of 3M Kibor + 300bps, payable on quarterly basis. The outstanding principal at end-Sept18, will be repaid in eight quarterly installments.
The seven-member Board of Directors (BoD), including the CEO, is majorly composed of representatives from Sapphire Group, while Xenel is represented by one member. The board has played an active role in providing strategic guidance to Sapphire Electric and has been responsible for making key decisions. Mr. Shahid Abdullah, the CEO, also heads the parent company Sapphire Fibres Limited. He is supported by a professional management team.