The Pakistan Credit Rating Agency Limited
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Saadat Mirza

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PACRA Maintains Entity Ratings of Sapphire Electric Company Limited

Rating Type Entity
(26-Feb-21 )
(28-Feb-20 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect strong business profile of Sapphire Electric Company Limited (Sapphire Electric) emanating from the demand risk coverage under Power Purchase Agreement signed between CPPA-G (Central Power Purchasing Agency) and the company. Meanwhile, the Implementation Agreement provides sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. Nevertheless, delayed payments from the power purchaser remained a challenge. The ratings incorporate low operational risk, a result of the performance of General Electric - the O&M operator. Primary fuel of the plant is Regasified Liquefied Natural Gas (RLNG) which is supplied by Sui Northern Gas Pipeline Limited (SNGPL). Thus fuel supply risk is considered adequate, pertaining to meaningful addition of RLNG in Pakistan’s fuel mix. Although there are delays in payments from power purchaser, the company manages the impact by aligning the payments to fuel supplier with its receipts. This keeps working capital needs under check. The ratings stemmed from the fact that the long-term debt of the company was fully paid successfully in September-2020 and now the only debt on the financial statements of Sapphire Power is short-term debt. The Company's financial risk profile is dependent on the timely receipt of receivables from the power purchaser. The ratings draw comfort from the sponsors’ demonstrated support to the Company. SECL has recently signed an agreement with Govt. actual impact of executed agreement is yet to be seen.
Upholding operational performance in line with agreed performance levels would remain a key rating driver. The company's association with Sapphire Group provides comfort to the ratings. Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important. However, the management ably supported by sponsors’ remains committed to sustain improvement in management of commercial obligations and timely debt repayments.

About the Entity
Sapphire Electric was established in 2005 as an independent power producer (IPP), with gross capacity of 225MW, is operating under the Power Policy 2002. It began commercial operations in October 2010. Sapphire Electric is a subsidiary of Sapphire Fibres Limited. Sapphire Group owns (70%) stake in Sapphire Electric mainly through Sapphire Fibres Limited (70%), while remaining stake is owned by Xenel Saudi Arabia (20%), Meezan Bank (5%) and few high net worth individuals (5%). Sapphire Electric's project cost comprised of 25% equity and 75% debt. Long-term debt carries mark-up at the rate of 3M Kibor + 300bps, payable on quarterly basis. The seven-member Board of Directors (BoD), including the CEO, is majorly composed of representatives from Sapphire Group, while Xenel is represented by one member. The board has played an active role in providing strategic guidance to Sapphire Electric and has been responsible for making key decisions. Mr. Shahid Abdullah, the CEO, also heads the parent company Sapphire Fibres Limited. He is supported by a professional 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.