The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Maintains the Entity Ratings of Thar Energy Limited

Rating Type Entity
Action Maintain Initial
Long Term A- A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch Yes Yes

The Hub Power Company Limited of Pakistan along with Fauji Fertilizer Company Limited, are setting up a 330MW coal power plant, under the umbrella of Thar Energy Limited (TEL). Both major shareholders collectively represent 90% shareholding, and have very strong credentials, as also reflected by their Entity Ratings (AA+). The financial strength and experience in the energy chain of the sponsoring companies is positive to the ratings, while the controlling interest lies with HUBCO. TEL has been awarded an upfront tariff, with the payments to be received from CPPA-G backed by the sovereign guarantee. China East Resource Import & Export Corporation and China Machinery Engineering Corporation are the EPC contractors; comfort is drawn that they have ~30 years of worldwide experience. Currently, project is exposed to completion risk, because ~74% construction work is completed till Aug-21. COD is delayed because of FME claim from the EPC contractors in wake of COVID-19 outbreak. However, TEL has received ~60% of total debt and injected ~70% of equity as of end-Aug 21 and management is confident to achieve the COD as per the revised plans. The Rating Watch signifies the uncertainty due to the FME claim and delay in RCOD.
EPC contractors have provided bank guarantees in form of performance bonds, subsequent to the COD warranty bonds will be issued. These bank guarantees provide additional cushion for the sustainable financial risk profile. Further, the company will maintain the Debt Service Reserve Account, providing coverage of six months on its Long Term Loans till maturity. Moreover, the operations of the plant are exposed to resource risk, because the Thar Block II is under construction but SECMC (coal supplier) has notified to TEL that they are confident of completing construction before the COD of TEL and will supply them the required coal.
The Company has signed Power Purchase Agreement (PPA) with CPPA-G and as per the PPA, in case of no demand from the power purchaser, CPPA-G shall be liable to pay the capacity payments 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, startup-delay 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
Thar Energy Limited was incorporated in Pakistan on May 17, 2016 as a limited company under the repealed Companies Ordinance, 1984. The 330MW coal IPP is setting up in the energy park located in Block II of the Thar coalfields in Sindh. Mr. Saleemullah Memon is the CEO of the company. Mr. Memon has over twenty years of experience in the energy and manufacturing sector. Mr. Memon holds an MBA in Finance. The estimated cost of the project is USD 520mln. Debt financing constitutes 75% of the project cost i.e. USD 390mln, which is financed from local and foreign financial institutions. Both the local loan and foreign loan has 10 years repayment period, with semiannual repayments.

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