The Pakistan Credit Rating Agency Limited
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Arsalan Ahmed

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PACRA Assigns Initial Entity Ratings to Master Green Energy Limited

Rating Type Entity
(15-Jan-20 )
Action Initial
Long Term A
Short Term A1
Outlook Stable
Rating Watch -

Master Group, pioneers of foam products, is setting up its second 50MW wind power plant – Master Green Energy Limited. The ratings incorporate the Group's previous experience in successfully commissioning and operating a 52.8MW Wind Energy Power Plant (Master Wind Energy Limited). Master Green is awarded a cost plus tariff, with the payments to be received from CPPA-G backed by the sovereign guarantee. Currently, project is exposed to completion risk because construction work is at initial stage; Hydrochina International Engineering Company Limited & Hangzhou Huachen Electric Power Control Company are the EPC contractors, comfort is drawn that they have ~40 years of worldwide experience in the wind power technology. In case of delay in achieving the COD, the EPC contractors will be liable to pay the liquidated damages of $ 29,000 per day backed by irrevocable bank guarantee of 15% of EPC cost. The construction contractor will be the O&M operator for two years after COD; it will provide the warranty bond (10% of EPC cost) in the form of irrevocable bank guarantee for 24 months after COD. These bank guarantees provide additional cushion for the sustainable financial risk profile. Further, the company will maintain the Payment Service Reserve Account (PSRA), which will be filled by 6 months SBLCs and 3 months cash flows, in total providing coverage of nine months on its financial obligations till maturity. Further, the project revenues and cash flows are exposed to wind risk, there is seasonal variation in the wind speed which effect the electricity generation, ultimately cash flows may face seasonality. However, historical wind speeds provide comfort that Master Green would be able to generate enough cash flows to keep its financial risk manageable.
The Company has signed Energy Purchase Agreement ("EPA") with CPPA-G, as per the EPA, in case of non project missed volumes the power purchaser shall be liable to pay the missed volumes at applicable tariff rates. The Government of Pakistan has given payment guarantee against dues from CPPA-G. The Company has adequate insurance coverage to cover the risk of business interruptions, marine & erection etc. Furthermore, external factors such as any adverse changes in the regulatory framework or prolonged delay in achieving COD may impact the ratings. Upholding financial discipline is also a consideration.

About the Entity
Master Green Energy Limited, incorporated in May 2015, is a Renewable Energy Independent Power Producer (RE IPP) operating under the Renewable Energy Policy 2006 by AEDB. The 50MW wind IPP is setting up in Jamshoro, Sindh. Mr. Rumman Arshad Dar is the CEO of the company. Mr. Dar has over eleven years of experience in the energy sector. Mr. Dar holds an MBA in Finance and has cleared the first two levels of the CFA program. The total estimated cost of the project is USD 64.64mln. Debt financing constitutes 80% of the project cost i.e. USD 51.71mln, which is financed from local and foreign financial institutions. The local facility has tenor of ten years and foreign facility has thirteen years with two years grace period, with quarterly repayments. The project started construction in September 2019 with the COD expected in November 2020. Master Group has a long history spanning over 50 years. The flagship company Master Enterprises (Pvt.) Ltd established in the year 1963, deals in foam products. The Group gradually diversified in various industries with operations across textile, engineering, automobile and retail sector. Master Group has already an operational wind power plant in Jhimpir, Sindh (Master Wind Energy Limited).

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.