The Pakistan Credit Rating Agency Limited
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PACRA Places Entity Ratings of Master Green Energy Limited on Rating Watch, Outlook "Developing"

Rating Type Entity
(29-Jun-20 )
(15-Jan-20 )
Action Maintain Initial
Long Term A A
Short Term A1 A1
Outlook Developing Stable
Rating Watch Yes -

Master Group, pioneers of foam products, is setting up its second 50MW wind power plant – Master Green Energy Limited (MGEL). The ratings incorporate the Group's previous experience in successfully commissioning and operating a 52.8MW Wind Energy Power Plant (Master Wind Energy Limited). MGEL is awarded a cost plus tariff, with the payments to be received from CPPA-G backed by the sovereign guarantee. Hydrochina International Engineering Company Limited & Hangzhou Huachen Electric Power Control Company are the EPC contractors, comfort is drawn that they have ~40 years of worldwide experience in the wind power technology. Currently, project is exposed to completion risk because as of May-2020, 36.75% construction work is completed. In addition, due to the lockdown in China (Hubei) in Jan-20, and the fact that both the contractors are of Chinese origin, the EPC Contractors served Force Majeure Event (FME) claim to MGEL in light of the COVID-19 Pandemic, which MGEL rejected. Now, a detailed FME claim is awaited by the EPC contractors. CPPA-G has been notified in due time, and the management has represented that the notice has been acknowledged. In case of delay in achieving the COD, the EPC contractors will be liable to pay the liquidated damages of $ 29,000 per day backed by irrevocable bank guarantee of 15% of EPC cost from Bank of China. The Rating Watch signifies the prevailing uncertainty due to the outbreak of COVID-19 pandemic.
The construction contractor will be the O&M operator for two years after COD; it will provide the warranty bond (10% of EPC cost) in the form of irrevocable bank guarantee for 24 months after COD. These bank guarantees provide additional cushion for the sustainable financial risk profile. Further, the company will maintain the Payment Service Reserve Account, which will be filled by 6 months SBLCs and 3 months cash flows, providing coverage of nine months on its financial obligations till maturity. Further, the project revenues are exposed to wind risk, there is seasonal variation in the wind speed which effects the electricity generation, ultimately cash flows may face seasonality. However, revenue projections have been undertaken on high probability of exceedance, as is an industry standard and historical wind speeds provide comfort that MGEL would be able to generate enough cash flows to keep its financial risk manageable.
The Company has signed Energy Purchase Agreement ("EPA") with CPPA-G, as per the EPA, in case of non project missed volumes the power purchaser shall be liable to pay the missed volumes at applicable tariff rates. The Government of Pakistan has given payment guarantee against dues from CPPA-G. The Company has adequate insurance coverage to cover the risk of business interruptions, marine & erection etc. Furthermore, external factors such as any adverse changes in the regulatory framework or prolonged delay in achieving COD may impact the ratings.

About the Entity
Master Green Energy Limited, incorporated in May 2015, is a Renewable Energy Independent Power Producer (RE IPP) developed under the Renewable Energy Policy 2006 by AEDB. The 50MW wind IPP is setting up in Jamshoro, Sindh. Mr. Rumman Arshad Dar is the CEO of the company. Mr. Dar has over eleven years of experience in the energy sector. Mr. Dar holds an MBA in Finance. The estimated cost of the project is $ 64.64mln. Debt financing constitutes 80% of the project cost i.e. $ 51.71mln, which is financed from local and foreign financial institutions. The local loan has tenor of 10 years and foreign loan has 13 years with 2 years grace period, with quarterly repayments. The project started construction in Sep 2019 with the original timeline for COD expected in Nov 2020, but due FME claim from EPC contractors, COD will be delayed by at least 2-3 months. The exact delay in COD is difficult to ascertain at the moment.

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