PACRA ASSIGNS NEGATIVE OUTLOOK TO CHANAR ENERGY LTD | RATING WATCH
Chanar Energy Limited has a 22MW baggase based power plant which is adding renewable energy to the national grid. The IPP model is designed to creating synergy and higher efficiency gains between IPP and sugar mill. Sustainable business profile of Chanar Energy emanates from the demand risk coverage under Energy Purchase Agreement signed with CPPA-G and ‘Bagasse supply and Steam Purchase Agreement’ with Chanar Sugar Mills Limited, a related entity. However, procurement of raw material, solely from the associated concern, Chanar Sugar Mills, is posing constraints on generation capability and cash flow stream of the Company. The main risk factor affecting the stability of return is the availability of baggase at a price higher than the assigned fuel component, by NEPRA. The ratings reflect company's average credit quality and liquidity profile. Plant availability during crushing season is reported at 19%, while during off season the same remained unavailable. Below benchmark operational parameters, coupled with restricted supply avenues, impacted the Company's revenues and profitability. Company has project debt of PKR 2,200mln repayable till Feb 2029 in quarterly installments. Uptill now, the due debt obligations are met through energy receivables and short-term credit lines. Likewise, the operational needs are financed by sponsors. The leverage is high in comparison to the equity base. The downward adjustment in the interest rates would add cushion. The management is resorting to deferment appeal for the upcoming principal payments. However, material progress is yet to be seen, as approval from the financing consortium is in process.
Rating Watch and developing outlook signifies the prevailing uncertainty pertinent to company’s financial muscles, deferment approval and timely debt servicing. The ratings are dependent on Chanar Energy’s ability to sustain its business (Both On and Off sugar season) and financial profile; any deterioration in margins, leading to weak coverages and pressure on liquidity, will have a negative impact on ratings. Financial support from sponsors remains imperative in the long term. However, SBP's initiative of reducing interest rates and deferral of principal repayments for one year will provide relief.
Chanar Energy was established in 2014 under the repealed Companies Ordinance 1984 as an independent power producer. The company is operating a baggase based power plant with a Gross capacity of 22MW. Chanar Energy's plant commenced operations in Feb 2019. Chanar Energy is majority owned by Mr. Javed Ahmad Kiyani and his family.
The four-member Board, comprising four members of Kiyani family provides adequate guidance to the company. Mr. Javed Ahmad Kiyani is the CEO of the company. He is supported by an able team.