PACRA Assigns Preliminary Ratings to Reon Energy Limited - PPSTS - PKR 1.5bln – TBI

The ratings reflect Reon Energy Limited's (“Reon” or “the Company”) strong position in smart energy solutions, specializing in renewable microgrids for energy-intensive industries. Operating under an EPC model, Reon offerings also include REFLEX™ (lithium-ion battery platform), SPARK™ (energy management system), and Asset Performance Management for efficiency and lifecycle optimization of solar assets. The Company's revenues are primarily driven by the Commercial & Industrial and Telecom sectors, reinforced through collaborations with leading business groups. Revenue for CY25 declined, reflecting normalization after the prior year's sharp growth; margins remained broadly stable, supported by a healthy project pipeline. Working capital requirements continue to be met through a mix of internal cash generation and short-term borrowings, with the Company having successfully raised and subsequently redeemed, in full and on schedule, a PKR 400mn short-term Sukuk during the period. To further support liquidity and diversify its funding base, the Company is planning to raise funds through a rated, privately placed, secured short-term Sukuk of up to PKR 1,500mn, inclusive of a PKR 500mn green shoe option. Proceeds will be utilized to meet the Company's working capital requirements. PACRA has assessed the Company's projected cash flows over the Sukuk tenor under two scenarios. Based on collections from existing (in-hand) projects, projected gross inflows providing gross coverage of around 3.9x the proposed issue size, and the identified pipeline of prospective project awards, projected gross inflows provides coverage equivalent to around 7.2x coverage. While cash inflows are expected to be weighted toward the earlier part of the tenor, the Company's projected liquidity under the base case is likely to come under pressure in the final months unless additional projects materialize. In contrast, successful execution of the projected pipeline is expected to provide a comfortable residual cash cushion at maturity. Accordingly, timely realization of cash flows from both existing and newly secured projects remains a key rating consideration. Management has represented that the project pipeline is expected to materialize as anticipated; however, should delays arise, cash flows from related and associated undertakings, including the PPA-based business of Reon 1 and business routed through the parent, RMH International DMCC, are expected to support timely repayment. Additionally, a Debt Payment Account (DPA), under the lien of the Investment Agent, will be established and funded ahead of the Sukuk maturity, providing an additional layer of repayment discipline.
Adherence to the repayment schedule demonstrated on the Company's prior short-term Sukuk, together with continued execution of its project pipeline and timely realization of related cash flows, remain key considerations for the ratings assigned.

About the Entity
Incorporated in 2014, the Company became a wholly owned subsidiary of RMH International DMCC following the divestment by Dawood Lawrencepur Limited in October 2024. RMH International DMCC is owned by Reon Energy Limited (UK), with approximately 53% ownership held by the Company's management. The Company is led by CEO Mujtaba Haider Khan.

About the Instrument
The Company is issuing a Rated, Privately Placed, Secured Short-Term Sukuk of up to PKR 1,500mln (including a PKR 500mln green shoe option) with a tenor of 12 months to meet its working capital requirements. The Sukuk carries a profit rate of 3-month KIBOR plus up to 175 bps, reset and serviced quarterly, with bullet repayment of principal at maturity. The instrument is secured by a ranking charge over the Company's current assets, a Debt Payment Account (DPA) under lien of the Investment Agent, and a covenant requiring inventory of at least 33% of the Sukuk issue value throughout the tenor. Additional credit enhancement includes post-dated cheques and a pre-default letter of support from RMH International DMCC.