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The Pakistan Credit Rating Agency Limited
Press Release

Date
19-Jul-21

Analyst
Saadat Mirza
saadat.mirza@pacra.com
+92-42-35869504
www.pacra.com

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PACRA Upgrades Entity Ratings of ACT2 Wind Private Limited

Rating Type Entity
Current
(19-Jul-21)
Previous
(29-Jul-20)
Action Upgrade Initial
Long Term BBB+ BBB-
Short Term A2 A3
Outlook Stable Developing
Rating Watch - -

The rating recognizes that ACT2 Wind is now clearly heading towards achieving the commercial and sustainable operations. The project has also taken significant strides towards completion and management is committed to achieve the milestone. Akhter Group, Ismail Group and Tapal Group is setting up a 2nd JV of 50 MW wind power plant - ACT2 Wind (Pvt) Limited. The ratings incorporate the Group's previous experience in successfully commissioning and operating a 30MW Wind Energy Power Plant (ACT Wind Pvt Limited). ACT2 Wind is awarded a cost plus tariff, with the payments to be received from CPPA-G backed by the sovereign guarantee. The required commercial operations date as defined under EPA is fifteen months from construction start date (July’20). The project has completed 80% of off-shore and 64% of on-shore work. Hydrochina International Engineering Company Limited & Hangzhou Huachen Electric Power Control Company are the EPC contractors, comfort is drawn that they have ~40 years of worldwide experience in the wind power technology. In case of delay in achieving the COD, the EPC contractors will be liable to pay the liquidated damages of $ 28,000 per day backed by irrevocable bank guarantee of 15% of EPC cost. The construction contractor will be the O&M operator for two years after COD; it will provide the warranty bond (10% of EPC cost) in the form of irrevocable bank guarantee for 24 months after COD. These bank guarantees provide additional cushion for the sustainable financial risk profile. The project will be financed through debt to equity mix of 80:20, where debt comprises an equal mix of local and foreign lenders. So far owners have injected equity of PKR 869mln and debt quantum is USD 3.4mln and PKR 3.1bln of foreign and local facility respectively. The company will maintain the Debt Service Reserve Account (DSRA), which will be backed by 6 months SBLCs, in total providing coverage of six months on its financial obligations till maturity. Further, the project revenues and cash flows are exposed to wind risk, there is seasonal variation in the wind speed which effect the electricity generation, and ultimately cash flows may face seasonality. However, historical wind speeds provide comfort that ACT2 Wind would be able to generate enough cash flows to keep its financial risk manageable. Comfort is drawn from the group association, having strong financial backing and relevant experience as well.
The Company has signed Energy Purchase Agreement ("EPA") with CPPA-G, as per the EPA, in case of non-project missed volumes the power purchaser shall be liable to pay the missed volumes calculated using 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 etc. Furthermore, external factors such as any adverse changes in
the regulatory framework or prolonged delay in achieving COD may impact the ratings. Upholding financial discipline is also a consideration.

About the Entity
ACT2 Wind Pvt Limited, incorporated in Nov 2015, is a Renewable Energy Independent Power Producer (RE IPP) operating under the Renewable Energy Policy 2006 by AEDB. The 50MW wind IPP is setting up in Jhimpir, District Thatta, Sindh. Mr. Khurshid Akhtar is the CEO of the company. Mr. Khurshid has over eighteen years of experience as an Industrialist/businessman. Mr. Khurshid has done his MBA from LUMS. The total estimated cost of the project is USD 62.952mln. Debt financing constitutes 80% of the project cost i.e. USD 50.36mln, which is financed from foreign financial institutions and locally from SBP under re-financing scheme at fixed rate 5%. The foreign facility has tenor of thirteen years with two years grace period and quarterly repayments while local loan has tenor of ten years with 2 years of grace period. The project construction will start in August 2020 with the COD expected in 15 months after that i.e. October 2021. The sponsors (Akhter Group, Ismail Group and Tapal Group) of ACT2 Wind, already running a Wind plant of 30 MW from last 4 years, which achieved COD in Oct-2016.

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.