The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Maintains Entity Ratings of Narowal Energy Limited

Rating Type Entity
(23-Jun-21 )
(25-Jun-20 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect strong business profile of Narowal Energy Limited emanating from the demand risk coverage under Power Purchase Agreement (PPA) signed between CPPA-G and the Company. Meanwhile, the Implementation Agreement provides sovereign guarantee for cash flows, given adherence to agreed performance benchmarks (Availability: 96%, Efficiency: 45%). The Company continues to meet its performance benchmarks. Nevertheless, delayed payments from the power purchaser remained a challenge as the same poses pressure on Company’s working capital requirements. Because of the mounting receivables and consequent funding thereof from banking lines, company has arranged amicable working capital lines to cover its working capital requirement out of which 79% had been utilized as at Mar-21. Furthermore, Company has also secured a long-term finance facility of PKR 25mln under the salary refinancing scheme by SBP. The loan is repayable in eight equal quarterly installments and the repayments have already started from Jan 2021, providing the much needed comfort. The ratings incorporate low operational risk, a result of in-house O&M undertaken by Hub Power Services Limited (HPSL) – an associated company. The Company’s generation witnessed an increase during the 9MFY21 on account of better off-take from RFO based IPPs due to decline in FO prices. Narowal Energy has repaid all of its project debt obligations without availing any benefit of forbearance period indicating strong financial profile and working capital management. Sound financial profile of Hubco; the holding company, provides comfort to the ratings.
Adherence to good financial discipline towards both financial and commercial obligations would remain important. Meanwhile, upholding strong operational performance in line with agreed performance levels remain important.

About the Entity
Narowal Energy Limited (Narowal Energy) – 100% owned subsidiary of The Hub Power Company Limited (Hubco) - was established in 2015 as a public limited company to take up Narowal plant of Hubco. Hubco completed demerger of its Narowal Plant and Narowal Energy completely acquired functions of Narowal Plant from March 2017 after court’s approval. Narowal Energy Limited, with gross capacity of 225MW, is operating under the Power Policy 2002. It began commercial operations in April 2011. The Board of Directors of Narowal Energy Limited comprises of four Directors, including the CEO. The members of the Board are also Board members of HUBCO. Mr. Khalid Mansoor, the current CEO, has recently resigned from the post and confirmation of new CEW is subject to approval from the BoD.

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.