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PACRA Upgrades Entity Ratings of Lucky Electric Power Company Limited

Rating Type Entity
Action Upgrade Maintain
Long Term AA- A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Lucky Electric Power Company Limited (Lucky Electric) is setting up a 1x660MW (gross) local coal fired super critical power plant located in Deh Ghangiaro, Bin Qasim, Karachi. The project achieved financial close (FC) in June-18. Its COD as per PPA is 1st March, 2021. As at end-Jun 2020, the actual project progress, issued by EPC was ~85%. In addition the EPC Contractors has served Force Majeure Event (FME) claim to Lucky Electric in light of the COVID-19 Pandemic, which Lucky Electric is striving for its withdrawal. Due to pandemic, the management is expecting some delay in achieving its COD, though the delay window is short and management remains committed to achieve the milestone. Further, an explicit undertaking from the sponsor is provided to ensure that all kind of support including financial shall be made available to complete the development work and honour both its present and future commitments towards its creditors. This is a key rating consideration. The EPC contractors will be liable to pay the liquidated damages of $ 87,500 per day beyond the time for completion subject to upper cap of 12.5% of Contract Value. The primary fuel is Thar Coal; a coal supply agreement is signed with Sindh Engro Coal Mining Company (SECMC), from its Block-II (Phase III). Company is also in a process of negotiating imported coal supply agreement from International supplier which is expected to be executed by September 30, 2020. Plant would be run on imported coal in case of non-availability of local coal. It is pertinent to mention that Yunus Brother Group through its trading company, Lucky Commodities, has vast experience in import of coal. The onshore EPC contract is with SEPCO III Electric Power Construction Corporation and offshore EPC contract is with Tie Jun International. Comfort is drawn from the experience of these contractors. The ratings incorporate the project’s exposure to the completion risks. Once completed, the Company’s main challenge would be to keep the plant operational. DSRA will be fully funded through tariff and ROE component may be diverted to DSRA account, if required to make balance equivalent to debt servicing due for the upcoming nine months. Off take agreement is with CPPA-G, which will, upon plant’s availability as per contract, provide capacity payments even if no purchase order is placed. The Government of Pakistan has given payment guarantee against dues from CPPA-G. Rating takes benefit from the company’s association with one of the largest conglomerate of the country.
Ensuring timely commissioning of the project is important. Moreover, timely completion of the affiliated infrastructure projects needed to make the plant operational and the viability of local Coal is a consideration.

About the Entity
Lucky Electric Power Company Limited, incorporated in Pakistan on June 13, 2014 as public unlisted company is setting up 1x660MW (gross) local coal fired super critical power plant. It will be one of the indigenous coal based Power Plant of Pakistan at Port Qasim, Karachi, Sindh. Yunus Brother Group (YBG) has a long history spanning over 50 years, operating in various segments,. Lucky Cement Limited owns 100% shareholding of Lucky Electric Power Company Limited. Lucky Cement Limited stands as the flagship company of Yunus Brothers Group. Lucky Cement is one of the largest producers and leading exporters of quality cement in Pakistan. The Company’s board comprises of six directors, including CEO, all the board members represents Lucky Cement. Mr. Muhammad Ali Tabba, the Chairman, has been associated with the Group in different capacities for nearly three decades and is currently chairing the Board with his visionary leadership and vast experience.

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.