The Pakistan Credit Rating Agency Limited
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PACRA Maintains Entity Ratings of PakGen 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 Pakgen Power business; whereby revenues and cash flows are guaranteed by the sovereign government given adherence to agreed operational parameters. On standalone basis, increase in delta losses between required and actual efficiency levels has impacted the operational performance. Negative delta remained a drag. Topline of the company has declined on the back of lower power demand from CPPA-G, which in turn translating into reduced profitably. Receivable days has increased significantly in 9MCY18 owing to deteriorated payment behavior from the power purchaser. The company's financial profile, though adequate, is highly dependent on the behavior of the power purchaser. The Company has been consistent in paying dividends. Pakgen Power repaid its long term project debt in 2010. However, Company has a moderately leveraged capital structure, current borrowings reflects the need to bridge the working capital requirements. Because of the mounting receivables and consequent funding thereof from banking lines, remaining cushion in the available working capital facilities is limited, warranting management’s immediate attention.
Company has cancelled its plan of converting the Pakgen Power plant from oil fired to coal fired boiler, owing to the government policy to restrict use of imported coal on certain projects.
Upholding operational performance in line with agreed performance levels would remain a key rating driver. Meanwhile, any significant increase in overdue receivables, as a result of rising circular debt, coupled with insufficient available working capital financing, in turn weakening in financial risk profile may negatively impact the ratings.

About the Entity
Pakgen Power Limited 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 365MW. The PPA has a remaining contractual life of 9 years under the PPA (ending in Feb-2028). The Company has entered into a contract for a period of thirty years for purchase of fuel from PSO. Lalpir’s O&M activities are handled by an in house team trained under the expertise of AES, former O&M operator. This team is involved in O&M activities since the plant’s COD and hence carries significant experience. Pakgen is listed on Pakistan Stock Exchange.

The major shareholders of the company are Nishat Group (40%) and City Schools (Private) Limited (17%). Majority of the board members are nominated by Nishat Group and are group Executives. Mr. Hassan Mansha, heading the Nishat Group's interest in power sector, is the Chairman of the board. Mr. Ghazanfar Hussain Mirza, CEO of the company possesses around four decades of experience in business development, corporate management in an engineering, technical and multinational environment. Mr. Khalid Qadeer, the Director Finance has over four decades of experience, supported by the competent 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.