The Pakistan Credit Rating Agency Limited
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Faizan Arif

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PACRA Maintains Entity Ratings of LalPir 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 Lalpir Power Limited (Lalpir Power)business; whereby revenues and cash flows are guaranteed by the sovereign government given adherence to agreed operational parameters. A risk of any decrease in efficiency factor against required benchmark would be borne by the Company itself given the fact, Lalpir Power is managing its operations and maintenance (O&M) in-house. Business risk is considered low exhibited by demand risk coverage under Power Purchase Agreement signed between Power purchaser and the company. Topline of the company has decreased, owing to lower power generation during the period demanded by power purchaser amid to better energy mix. Receivable days has increased during CY18 owing to the delay in timely receipt of receivables. Lalpir Power has been paying dividend which in times of need is an internal source of liquidity available. Lalpir Power repaid its long term project debt in 2010. Current borrowings mainly short-term reflects the need to bridge the working capital requirements and maintenance of projects. Because of the mounting receivables and consequent funding thereof from banking lines, remaining cushion in the available working capital facilities is limited, reflecting moderately high utilization of 67% as at end-Dec18, warranting management’s immediate attention.
Company has cancelled its plan of converting the Lalpir Power plant from oil fired to coal fired boiler, owing to the government policy to restrict use of imported coal on certain projects only.
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
Lalpir Power Limited (Lalpir Power) 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 362MW. The project has a remaining life of more than 8 years (ending in Nov-2027) under the PPA. The Company has entered into a contract for a period of thirty years for purchase of fuel from PSO. Lalpir Power’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. Lalpir Power is listed on Pakistan Stock Exchange.
The major shareholders of the company are Nishat Group (44.6%) and City Schools (Private) Limited (18.17%). While institutions hold (29.16%) and individuals (8.07%). Majority of the board members represent Nishat Group and are group Executives. Mr. Hassan Mansha, heading the Nishat Group's interest in power sector, is the Chairman of the board. The board includes one executive director, Mr. Mahmood Akhtar, who is appointed as CEO of the company during 1QCY19, is supported by an experienced 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.