The Pakistan Credit Rating Agency Limited
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Shahmeer Dar

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PACRA Maintains Entity Ratings of Narowal Energy Limited

Rating Type Entity
(25-Jun-20 )
(27-Dec-19 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect strong business profile of Narowal Energy Limited emanating from the demand risk coverage under Power Purchase Agreement (PPA) signed between CPPA-G and the Company. Meanwhile, the Implementation Agreement provides sovereign guarantee for cash flows, given adherence to agreed performance benchmarks (Availability: 88%, Efficiency: 45%). The Company continues to meet its performance benchmarks. Nevertheless, delayed payments from the power purchaser remained a challenge as the same poses pressure on Company’s working capital requirements. The ratings incorporate low operational risk, a result of in-house O&M undertaken by Hub Power Services Limited (HPSL) – an associated company. The Company’s generation witnessed a decrease during the 9MFY20 on the back of lower power demand by CPPA-G. Narowal Energy has been repaying its debt repayments (Principal and Markup) on time without availing benefit of forbearance period. The Company has successfully paid 38 installments out of 40 installments of its debt obligations. As of Mar-2020, the total Project debt is classified as current liability and shall be fully paid by Oct-2020, indicating strong financial profile and working capital management. Sound financial profile of Hubco; the holding company, provides comfort to the ratings.
Adherence to good financial discipline towards both financial and commercial obligations would remain important. Meanwhile, upholding strong operational performance in line with agreed performance levels remain important. Because of the mounting receivables and consequent funding thereof from banking lines, remaining cushion in the available working capital facilities is limited, but NEL has arrangement to borrow funds from The Hub Power Company Limited (HUBCO) an amount up to PKR 3,000mln at any point in time and utilization is PKR 893mln as at Mar-2020. Furthermore, the management has also acquired a cost overrun facility of PKR 2,500mln from a consortium of Allied Bank Limited and Pak Kuwait Investment Company. The loan is repayable in 12 equal quarterly installments commencing from July-2021, providing the much needed comfort. Moreover, the Govt. has recently issued a Sukuk of PKR 200bln for power sector. PKR 610mln in Energy payment has been received by NEL. The management is in talks with CPPA-G and Ministry to increase these payments further thereby further improving the company's financial position.

About the Entity
Narowal Energy Limited (Narowal Energy) – 100% owned subsidiary of The Hub Power Company Limited (Hubco) - was established in 2015 as a public limited company to take up Narowal plant of Hubco. Hubco completed demerger of its Narowal Plant and Narowal Energy completely acquired functions of Narowal Plant from March 2017 after court’s approval. Narowal Energy Limited, with gross capacity of 225MW, is operating under the Power Policy 2002. It began commercial operations in April 2011.
The Board of Directors of Narowal Energy Limited comprises of four Directors, including the CEO. The members of the Board are also Board members of HUBCO. The management control of the Narowal Energy vests with Mr. Khalid Mansoor, the CEO. He carries with him over three decades of experience in Energy & Petrochemical sectors in leading roles for mega size projects development, execution, management and operations. He is supported by a team of experienced professionals having relevant skills and expertise in their respective fields.

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.