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The Pakistan Credit Rating Agency Limited
Press Release

Date
28-Jun-21

Analyst
Sana Shameen
sana.shameen@pacra.com
+92-42-35869504
www.pacra.com

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PACRA MAINTAINS NEGATIVE OUTLOOK TO CHANAR ENERGY LTD | RATING WATCH

Rating Type Entity
Current
(28-Jun-21)
Previous
(29-Jun-20)
Action Maintain Maintain
Long Term BBB- BBB-
Short Term A3 A3
Outlook Negative Negative
Rating Watch Yes Yes

Chanar Energy Limited has a 22MW baggase based power plant which is adding renewable energy to the national grid. The IPP model is designed to creating synergy and higher efficiency gains between IPP and sugar mill. Sustainable business profile of Chanar Energy emanates from the demand risk coverage under Energy Purchase Agreement signed with CPPA-G and ‘Bagasse supply and Steam Purchase Agreement’ with Chanar Sugar Mills Limited, a related entity. However, procurement of raw material, solely from the associated concern, Chanar Sugar Mills, is posing constraints on generation capability and cash flow stream of the Company. The main risk factor affecting the stability of return is the availability of baggase at a price higher than the assigned fuel component, by NEPRA. The ratings reflect company's average credit quality and liquidity profile. Plant availability during crushing season is reported at 35%, while during off season the same remained unavailable. In comparison to the previous crushing season, the growth in the topline and profitability, emanating majorly from improved energy export and reduced interest rates is observed in the period under review. Company has a project debt of PKR 2,200mln repayable till Feb 2029 in quarterly installments. The deferment in the principal payments was received till Feb20; Company till May21 has timely paid-off its debt obligations. Uptill now, the due debt obligations are met through energy receivables and short-term credit lines. Likewise, the operational needs are financed by sponsors. The leverage is high in comparison to the equity base. The downward adjustment in the interest rates has added cushion.
Rating Watch and negative outlook signifies the prevailing uncertainty pertinent to company’s financial muscles, and timely debt servicing. The ratings are dependent on Chanar Energy’s ability to sustain its business (Both On and Off sugar season) and financial profile; any deterioration in margins, leading to weak coverages and pressure on liquidity, will have a negative impact on ratings. Financial support from sponsors remains imperative in the long term.

About the Entity
Chanar Energy was established in 2014 under the repealed Companies Ordinance 1984 as an independent power producer. The company is operating a baggase based power plant with a Gross capacity of 22MW. Chanar Energy's plant commenced operations in Feb 2019. Chanar Energy is majority owned by Mr. Javed Ahmad Kiyani and his family.
The four-member Board, comprising four members of Kiyani family provides adequate guidance to the company. Mr. Javed Ahmad Kiyani is the CEO of the company. He is supported by an able team.

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.