The Pakistan Credit Rating Agency Limited
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Faizan Arif

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PACRA Assigns Initial Entity Ratings to Sindh Engro Coal Mining Company Limited

Rating Type Entity
(25-Jul-19 )
Action Initial
Long Term AA
Short Term A1+
Outlook Stable
Rating Watch -

The ratings reflect Sindh Engro coal mining company’s ownership structure- owned by the Government of Sindh and financially sound business groups of the country. The rating also incorporates the fact that indigenous coal is expected to play a dominant role in meeting the country's future energy requirement. The Policy for Coal Tariff Determination Rules 2014 offers a guaranteed internal rate of return, cost indexation and pass-through tariff structure for SECMC. SECMC has leased Block-II (out of 12 blocks) of Thar, for the period of thirty (30) years, which has a cumulative capacity of ~1.57bln tonnes of coal which could be used to produce 5,000 MW for fifty (50) years. The rating favorably factors in successful commissioning of 3.8mln TPA (Phase-I) mine on 10th July 2019, three months earlier than the Scheduled COD. Subsequently, it will be ramped up to 7.6mln TPA in phase II. Block-II has four phases. Comfort is drawn from China Machinery Engineering Corporation (CMEC) – the O&M operator – having significant experience of International EPC Projects in Power Plants. Business risk is considered low, exhibited by demand risk coverage as SECMC has signed a Coal Supply Agreement with its associated company, Engro Powergen Thar Limited (EPTL), incorporated to operate mine-mouth coal-fired Power Plant (2x330MW), for phase-I. Total project cost (3.8mln TPA) which is funded through 75% debt and 25% equity and is supported by back-to-back Sovereign Guarantee, which is a huge comfort. SECMC has in place insurance arrangements against risk related to property and business continuity. This amply covers SECMC for its own risks and risks arising from its customer.
Adherence to good financial discipline towards both financial and commercial obligations is considered a strength. Meanwhile, upholding strong operational performance in line with agreed performance levels remain important. Effective management of the project, favorable regulatory regime, and consistency in related policies remain critical for the ratings.

About the Entity
Sindh Engro Coal Mining Company Limited is a public unlisted company, incorporated in Pakistan on October 15, 2009. The Company was formed under a Joint Venture Agreement between the Government of Sindh (GoS), Engro Energy Limited (EEL) [formerly Engro Powergen Limited (EPL)] and Engro Corporation Limited for the development, construction and operations of an open-cast lignite mine in BlockII of Thar Coal Field, Sindh. The company’s ordinary shares, ~95% of the total equity, are owned by Government of Sindh (~54.70%), Engro Energy Limited (~11.90%), Thal Limited (~11.90%), Habib Bank Limited (~9.50%), HUBCO (~8%), and CMEC Thar Mining Investments LTD (~4%). While preference shares, ~5% of the total equity, are owned by Huolinhe Open Pit Coal (HK) Investment Co. Ltd (100%).

The board of SECMC comprises twelve experienced professionals, five members represents Government of Sindh, two nominees are from Engro, two members appertaining to Thal Limited, while Habib Bank Limited, HUBCO and Huolinhe Investment company represent one member each. Mr. Khurshid Anwar Jamali is the Chairman of the board, with more than ~30 years of experience in his portfolio. Mr. Syed Abul Fazl Rizvi is the Chief Executive officer of the company, a mechanical engineer by profession. He is supported by the 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.