The Pakistan Credit Rating Agency Limited
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Bazah Tul Qamar

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PACRA Maintains Entity Ratings of Kohinoor Energy Limited

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

The ratings of Kohinoor Energy Limited (Kohinoor Energy) reflect its stable business profile emanating from a secured regulatory structure. This entails sovereign guaranteed revenues and cash flows, given adherence to agreed performance benchmarks. Kohinoor Energy continues to meet its availability (86.07%) and efficiency (43.5%) benchmarks - an outcome of technically sound O&M team, robust systems and controls. The company's financial risk profile is largely dependent on repayment behavior of the power purchaser. Current leveraging, mainly short-term, reflects an upturn in working capital management during 6MFY21, as the mounting receivables of PKR 8,036mln as on June20 showed a noticeable reduction (PKR 5,592mln) at the end Dec20, which consequently subsided the reliance on funding from banking lines, now there is a considerable cushion available in working capital facilities as it has been less utilized (i.e. 40%) as at Dec’20. Business risk is considered low exhibited by demand risk coverage under the Power Purchase Agreement signed between WAPDA and the company. However depending upon the liquidity situation, utilization is imputed to go up. Settlement of overdue receivables will remain crucial. Meanwhile, the coverages of the company have also improved due to decreased usage of short term borrowings. The Company, has recently signed the agreement in pursuant to MoU which will improve the liquidity in future, The salient terms include variable O&M along with Escalable Component of Capacity Purchase Price, reduced by 11% and application of USD exchange rate and US CPI on reduced variable O&M and 50% of reduced escalable component of capacity purchase price. In actual the impact of executed agreement is yet to be seen. The ratings continue to take comfort from Kohinoor Energy's association with Saigol Group.
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, outcomes of execution of master agreement are important.

About the Entity
Kohinoor Energy Limited, an independent power producer (IPP) – commissioned its plant under Power Policy 1994. With a total cost of US$ 138.8mln and capacity of ~131MW (Dependable capacity of 124MW), the company started its Commercial Operations in June 1997. Kohinoor Energy is listed on Pakistan Stock Exchange. The principal shareholders of the company is Saigol family (62%). The remaining shareholding (~38%) is widely dispersed. BoD comprises of seven members including the Chief Executive Officer. The board members are professionals with experience in managing the business affairs of companies in different sectors. The board includes one representative of Wartsila Pakistan. The chairman, Mr. Naseem Saigol is a renowned businessman. He also chairs the Board of Pak-Elektron Limited, an established appliances company. The board has been actively involved in providing strategic guidance to the company and implementing strong internal control framework. Mr. Muhammad Zeid Yousaf Saigol - Kohinoor Energy Limited, has joined as Chief Executive Officer in place of Mr. Shakeel. He has been associated as Executive Director with Pak Elektron Limited since 2011 and is leading the Company's Power Division Operations.

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.