The Pakistan Credit Rating Agency Limited
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Saadat Mirza

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PACRA Maintains Entity Ratings of Atlas Power Limited

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

The ratings reflect strong business profile of Atlas Power Limited (APL) emanating from the demand risk coverage under Power Purchase Agreement signed between National Transmission & Despatch Company (NTDC) and the company. Meanwhile, the Implementation Agreement provides sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. Atlas Power continues to meet its benchmark of availability (88%) and efficiency (45%) benchmarks. The company has moved Operations in-house successfully by retaining staff of previous O&M operator. Fuel supply risk is considered adequate as they procure from different suppliers with good credit terms. During the period, FY21, company provided ~511GWh of electricity to the national grid and recorded sales revenue of PKR ~12,371mln along with Net Profit (N.P) of PKR ~2,281mln in FY21. Delayed payments from the power purchaser poses a pressure on company’s working capital requirements, because of the mounting receivables. The company has arranged amicable working capital lines, to cover its working capital requirement, out of which 67% had been utilized as at June-21. Despite higher receivable days the entity managed to sustain its financial strength. Settlement of overdue receivables is crucial. APL project related debt has been completely paid off in Oct’19 and as at end June’21 Company’s long term borrowings stands at PKR ~3,510mln. Sound financial profile of Atlas Group; the major sponsor, provides comfort to the ratings. APL has made an investment (60%) in Zhenfa Pakistan New Energy Company (Pvt) Ltd, a Solar project of 100MW in Layyah. External factors such as any changes in the regulatory framework may impact ratings. Atlas Power has signed the agreement in February’21, in pursuant to MoU. This will improve the liquidity in future, upon receipt of 40% of trade receivables, as first instalment, in the form of cash, PIBs and instruments rest 60% will be received after 6 months of first instalment. Further, ROE is revised to 17% from 15% with no dollar indexation until dollar reaches PKR 168. In actual the impact of executed agreement is yet to be seen.
Upholding operational performance in line with agreed performance levels would remain a key rating driver. Accumulation of circular debt would pose threat to the company’s ability to continue with this practice. Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important. Any significant increase in overdue receivables, as a result of rise in circular debt, may impact the ratings.

About the Entity
Atlas Power, a public limited unlisted company, was established in January 2007. The company operates a 225 MW thermal power plant which is operational since 2009. Shirazi Investments (Pvt.) Limited with 85% shareholding is the main sponsor of the company. Remaining shareholding lies with Allied Bank Limited (ABL) (7.5%) and National Bank of Pakistan (NBP) (7.5%). Shirazi Investments is the holding company of Atlas Group - having dominant interests in auto and allied segments - cars, motorcycles, batteries - and non-banking financial industry - insurance and asset management.

Atlas Power’s board comprises nine members, including the CEO, with eight representatives of Shirazi Investments and one representative of ABL. Mr. Frahim Ali Khan is the Chairman of the Board. The board has been actively involved in providing strategic guidance to the company and implementing strong internal control framework.

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.