The Pakistan Credit Rating Agency Limited
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Mubasher Bhatti

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

Rating Type Entity
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Developing Developing
Rating Watch Yes Yes

Habibullah Power's Gas Supply Agreement (GSA) with Sui Southern Gas Company Limited (SSGCL), expired in Sep 2019. The company applied for renewal of GSA in Mar 2018. Recently Economic Coordination Committee (ECC) has approved the proposal by power division for supply of gas to plant for interim period of 3 to 6 months. Under this interim agreement (i) the company will have a 'take and pay' tariff by virtue of which the company will generate revenue only when electricity is supplied to the power purchaser (ii) Gas will be available on 'As and when available' basis (iii) No liquidity damages relating to gas supply or electricity supply will be applicable. The company is in negotiation with SSGCL for finalization of GSA. The Company had won an Arbitration Award against SSGCL and recorded the same in the audited financials for the year 2018. 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.
There is uncertainty as to the timely finalization of GSA with SSGCL. The ratings have a developing outlook and are placed on rating watch. PACRA would review the ratings once these agreements are finalized. The management is confident based on rational argument as to the finalization of GSA and continued operations of the Company.
Comfort can be drawn from Company’s low leveraged balance sheet and lower net working capital lines utilization after adjustment of cash and short term investments as at 30 Sep 2019. 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, finalization of GSA is in process, while timely finalization of the same is essential for 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 gross capacity of 140MW (Net Capacity: 129.5MW). During the interim period the gross capacity has reduced significantly due to non-availability of gas. Habibullah Coastal’s plant commenced operations in 1999. The GSA with SSGCL has expired in Sep 2019 and the company is in the process of negotiating new agreements with SSGCL and CPPA-G. The Ultimate Beneficiary 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.