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The Pakistan Credit Rating Agency Limited
Press Release

Date
16-May-19

Analyst
Faizan Arif
faizan.sufi@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

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

Rating Type Entity
Current
(16-May-19)
Previous
(27-Dec-18)
Action Maintain Maintain
Long Term A A
Short Term A1 A1
Outlook Developing Stable
Rating Watch Yes -

The ratings of Habibullah Coastal Power Company (Pvt.) Limited (Habibullah Power), an established IPP, reflect its stable business profile emanating from the demand risk coverage under Power Purchase Agreement signed between power purchaser and the Company. Meanwhile, the Implementation Agreement provides sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. Habibullah Power has a Gas Supply Agreement (GSA) with Sui Southern Gas Company Limited (SSGCL) for 20 years, ending in Sep 2019. The Company can apply for extension of GSA in no less than 2 months or more than 18 months prior to its expiry. The aforementioned condition indicates the existence of material uncertainty as to the continued operations of the Company. The Company was in arbitration with SSGCL for the recovery of liquidated damages, where International Court of Arbitration issued the final award in favour of the Company, entitling the Company for indemnity and damages from SSGCL, which in turn ultimately be utilized for the settlement of LD's claimed by WAPDA. 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. However, like other IPPs, its financial profile remains dependent on the payment behaviour of the power purchaser.
There is uncertainty as to the timely renewal of GSA within stipulated time period as the extension of PPA is linked with the renewal of GSA. The management is confident based on rational argument as to the renewal of GSA and continued operations of the Company. If achieved, this would be positive for the company.
Comfort can be drawn from Company’s low leveraged balance sheet. 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, renewal of GSA with SSGC is in process (expiring in 3QCY19), while timely renewal 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 a net capacity of 129MW. Habibullah Coastal’s plant commenced operations in 1999. It has signed a 30 years Power Purchase Agreement with the power purchaser of which 18 years has lapsed. 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.