PACRA Maintains Entity Ratings of Mughal Energy Limited

Mughal Energy Limited ("MEL" or "the Company") is a subsidiary of Mughal Iron & Steel Industries Limited (MISIL). The Company is in the process of installing a 36.5 MW hybrid captive power plant can operate on Mix of indigenous and imported Coal, and Bark, primarily intended to supply electricity to MISIL. MEL has been granted a 30-year generation license by the National Electric Power Regulatory Authority (NEPRA), effective from the Commercial Operation Date (COD). The project's total estimated cost is approx. PKR 6.5bln, with financing planned through a 65:35 debt-to-equity ratio. The Company has already secured the plant equipment and land using fully injected sponsor equity, reducing procurement risks. The required debt financing has been arranged and deployed for the installation and testing of the plant ahead of commercial operations. While the Company was previously looking to raise the balance of PKR 2.5 billion through a long-term Sukuk issuance, MISIL provided an unsecured long-term loan of PKR 2.5 billion during FY25 to bridge the timing gap, with the intention of refinancing once the hybrid captive power plant becomes operational. Off-take risk is mitigated by a long-term power purchase agreement already signed with MISIL. As of FY25, the project has achieved a key milestone in the development of its 36.5 MW hybrid captive power plant with the completion of the hydro testing phase, a critical step that verifies the mechanical integrity and pressure endurance of pipelines, boilers, and related systems before commencing electrical works. The project is now in its final stages, and electrification is underway, with COD expected by the end of this calendar year. In addition, the Company has completed the installation of its 1.8 MW solar power project, which has been leased to the holding company on a short-term basis until the hybrid plant becomes operational. The directors’ support for timely repayments provides comfort for the Company’s financing, and their projected support in the first year of COD will be important for ensuring the timely repayment of debt, alongside the expected self-sufficiency of the project. The sponsor has also approved corporate guarantees of up to PKR 6bln in favor of MEL to secure financing for a five-year period. Once operational, the MEL plant will enable MISIL to leverage in-house power generation, resulting in reduced electricity costs. Consequently, this will enhance margins by lowering overall production costs—a critical advantage for MISIL. The “Developing Outlook” reflects the ongoing progress of the project until the plant’s commissioning.
The ratings are contingent upon the management’s ability to meet completion milestones. However, the assigned ratings also take into account the strength and business acumen of the group. Going forward, the timely achievement of COD, directors’ support for the timely repayment of debt, generation in line with assumptions, fulfillment of PPA terms, and projected revenue and cost outcomes remain important factors in maintaining the assigned ratings.

About the Entity
MEL was incorporated as a public unlisted company in Pakistan on August 19, 2012. In November 2023, MEL was acquired by MISIL and became a wholly owned subsidiary. Subsequently, on June 13, 2024, MEL was listed on the Growth Enterprise Market (GEM) Board of the Pakistan Stock Exchange Limited (PSX), with a free float share of 10%. The Board is chaired by Mr. Mirza Javed Iqbal, who brings over four decades of experience in the steel and iron industry. The CEO, Mr. Khurram Javed, has been actively involved in the family business and supported by a team of experienced professionals with the necessary technical expertise and industry knowledge.