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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-Aug-20

Analyst
Madiha Sohail
madiha.sohail@pacra.com
+92-42-35869504
www.pacra.com

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PACRA Maintains Rating of Engro PowerGen Thar (Private) Limited | Privately Placed Sukuk of PKR 3,000mln

Rating Type Debt Instrument
Current
(28-Aug-20)
Previous
(29-Aug-19)
Action Maintain Initial
Long Term A A
Short Term - -
Outlook Stable Stable
Rating Watch - -

Engro Energy Limited (EEL) along with China Machinery & Engineering Corporation (CMEC) has set up first Thar coal based (2 x 330 MW) power plant (Complex) - Engro Powergen Thar (Pvt.) Limited (EPTL). The project achieved financial close (FC) in Apr-16 and COD in July-19. RCOD was June-19 as per PPA and delay LDs may apply for which the company is in discussion with CPPA as this date is exceeded. These LDs will be paid through shareholders' ROE. The primary fuel is Thar Coal; however, the plant can accommodate imported coal. A 30-year coal supply agreement is signed with Sindh Engro Coal Mining Company (SECMC), which is constructing a coal mine in Thar Block-II. The coal mine’s COD was July-19. Company's both units were successfully connected to and are providing electricity to the grid. The company has successfully provided 903GWh of electricity to the grid from COD to end-Sep 19. The financial strength and experience in the energy chain of the sponsoring companies – EEL and CMEC – is positive to the ratings. The onshore EPC contract is with CERIECO and offshore EPC contract is with CMEC. Comfort is drawn from the experience of these contractors and the involvement of Pakistan and Chinese governments, as this project comes under CPEC. Going forward, the Company’s main focus would be to keep the plant operational. Offtake agreement is with NTDC, 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 NTDC. The business risk of the company is mitigated as the company has successfully produced electricity on the specifications of Thar coal, which is being used for the first time. Furthermore, the use of CFB Boiler by the Company largely covers the risk of varying lignite quality
The management’s ability to effectively manage EPC risks and COD provides comfort. Trend in operational profitability would bode well for rating. The availability of Thar Coal is critical. External factors such as any adverse changes in the regulatory framework may impact the ratings.

About the Entity
EPTL, incorporated in September 2014, has set up a 2 x 330 MW Coal-based Power Plant under the 2015 Power Policy. The Company is a special purpose vehicle. It is the first indigenous coal based Power Plant of Pakistan in Thar Block – II, Sindh, for a total cost of USD 1.1bln, having a D/E ratio of 75:25. EPTL's majority ordinary shares are owned by Engro Energy Limited (EEL) (50.1%) and China Machinery Engineering Corporation (CMEC)(35%), while the remaining stake is owned by Habib Bank Limited (HBL) (9.5%) and Liberty Mills Limited (LML) (5.4%). Engro Energy Limited (EEL) is 100% owned subsidiary of Engro Corporation

About the Instrument
The Company secured PKR 3,000mln through the issuance of rated, secured, and privately placed Sukuk. The proceeds of the Sukuk will be utilized for financing the working capital requirement of EPTL. The tenor of the instrument will be five (5) years starting from the issuance of Sukuk, carrying a mark-up rate of 3 months KIBOR plus 1.10 %. The Sukuk will be having a grace period of around two years from the expiry of availability period or complete drawdown, whichever is earlier. The principal will be paid in quarterly installments. 25% of the issue will be redeemed at the end of third (3rd) year, 25% of the issue will be redeemed at the end of fourth (4th) year, while 50% of the issue will be redeemed at the end of fifth (5th) year. PP Sukuk is secured by way of First Charge over Project Assets with a margin of 20%. The book value of the asset was estimated at USD 1.1bln based on erstwhile Rupee Dollar parity.

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.