The Pakistan Credit Rating Agency Limited
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Taimoor Ahmad

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PACRA Maintains Entity Ratings of Atlas Power Limited

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

The ratings reflect strong business profile of Atlas Power Limited (Atlas Power) emanating from the demand risk coverage under Power Purchase Agreement signed between National Transmission & Despatch Company (NTDC) 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. The company served 90 days termination notice on Operations and Maintenance Agreement with MAN Diesel Pakistan with effect from 01 August 2019, which is planned to be taken up by the company internally; the management of associated risks is crucial. Fuel supply risk is considered adequate as they procure from different suppliers with good credit terms. Atlas Power continues to meet its availability (~95%) and efficiency (45%) benchmarks. 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 June-19, short term lines utilization stood at 74%. Given the liquidity situation, utilization is imputed to go up. Settlement of overdue receivables is crucial. Sound financial profile of Atlas 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
Atlas Power, a public limited unlisted company, was established in January 2007. The company operates a 225 MW thermal power plant which is operational since 2009. Shirazi Investments (Pvt.) Limited with 85% shareholding is the main sponsor of the company. Remaining shareholding lies with Allied Bank Limited (ABL) (7.5%) and National Bank of Pakistan (NBP) (7.5%). Shirazi Investments is the holding company of Atlas Group - having dominant interests in auto and allied segments - cars, motorcycles, batteries - and non-banking financial industry - insurance and asset management. Operations and maintenance of the plant are outsourced to MAN Diesel and Turbo till June-2022.
Atlas Power's project cost was PKR 14,124mln, comprising 25% equity and 75% debt. The tenor of the project was 10 years with Forty (40) consecutive quarterly payments, starting from July-2009. The mark-up on the debt is 3-month KIBOR + 3%. By end Jun-19, PKR 12,917mln has been paid off, while total principal outstanding is PKR 1,207mln.
Atlas Power’s board comprises nine members, including the CEO, with six representatives of Shirazi Investments, one representative of ABL and two independent directors. Mr. Frahim Ali Khan is the Chairman of the Board. The board has been actively involved in providing strategic guidance to the company and implementing strong internal control framework. Mr. Razi-ur-Rahman has replaced Mr. Maqsood Ahmad as new CEO of Atlas Power effective from 01 April 2019, whereas Mr. Maqsood Ahmad has joined the board as an executive director effective from 18 March 2019. Mr. Razi has been associated with the group for ~25 years.

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.