Sapphire Electric Company Limited

CREDIT RATING REPORT | Feb-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
19-Feb-25 AA- A1+ Stable Maintain -
19-Feb-24 AA- A1+ Stable Maintain -
22-Feb-23 AA- A1+ Stable Maintain -
25-Feb-22 AA- A1+ Stable Maintain -
26-Feb-21 AA- A1+ Stable Maintain -
About the Entity

Sapphire Electric was established in 2005 as an independent power producer (IPP) with a gross capacity of 225 MW, operating under the Power Policy 2002, and commenced commercial operations in October 2010. It is a subsidiary of Sapphire Fibres Limited, with the Sapphire Group holding a 70% ownership stake, primarily through Sapphire Fibres Limited. The remaining shares are distributed among Xenel Saudi Arabia (20%), Meezan Bank (5%), and a group of high-net-worth individuals (5%). The project was financed with a capital structure comprising 25% equity and 75% debt. The Company’s governance is overseen by a seven-member Board of Directors, including the CEO, predominantly comprising representatives from the Sapphire Group, alongside one representative from Xenel. The Board plays a pivotal role in setting company's strategic direction and making key decisions. Mr. Shahid Abdullah, the CEO, also leads the parent company, Sapphire Fibres Limited, and is supported by a highly skilled management team.

Rating Rationale

Sapphire Electric Company Limited ("SECL" or the "Company") is a Public limited entity operating a dual-fired RLNG-based power plant. The financial stability of its sponsors, including the Sapphire Group—one of the country’s largest conglomerates with substantial experience in the energy sector—positively influences the Company’s ratings. Additionally, the Implementation Agreement offers a sovereign guarantee, conditional upon achieving specified performance benchmarks (Availability: 92.06%). The ratings also reflect low operational risk, supported by the reliable performance of General Electric as the operations and maintenance (O&M) operator. The plant's primary fuel, Regasified Liquefied Natural Gas (RLNG), is supplied by Sui Northern Gas Pipeline Limited (SNGPL) under a long-term contract, ensuring reliable availability and mitigating fuel supply risks.
During FY24, the Company generated approximately 479 GWh of electricity for the national grid (FY23: 452 GWh), reporting sales revenue of approximately PKR 20,082mln (FY23: PKR 18,968mln) and a net profit of PKR 2,783mln (FY23: PKR 3,207mln). The year-on-year decline in generation compared to the benchmark generation was primarily due to the power purchaser's transition toward renewable energy sources to optimize the energy mix. This shift resulted in reduced working capital requirements, mainly allocated for fuel procurement. The Company manages its working capital requirements through a mix of internal cash generation and secured working capital facilities, of approx. PKR 12,544mln. As of FY24’s close, the average utilization of this facility stood at 8%, reflecting reduced demand.
The project-related debt for Sapphire Electric was fully repaid by September 2020, and the Company has no other long-term debt on its balance sheet, maintaining a strong equity base. However, this equity base may face dilution due to planned capital expenditures for Sapphire Hydro Limited, a wholly owned subsidiary developing a 150 MW hydropower project in Sharmai, Khyber Pakhtunkhwa. Financial closure for this project is expected in FY26, subject to the issuance of a Letter of Support from the authorities.

Key Rating Drivers

Maintaining sound financial discipline and upholding strong operational performance in line with agreed benchmarks remain critical. Additionally, recent developments in Pakistan's power sector indicate that the Government of Pakistan (GoP) has initiated negotiations with Independent Power Producers (IPPs) to consider potential adjustments to existing contractual arrangements. The specifics and outcomes of these discussions are yet to be determined, and any changes to the current regulatory framework could influence the Company’s ratings in the future.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Sapphire Electric Company Limited

rating analysis

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Profile
Plant

Sapphire Electric Company Limited (SECL or the Company), incorporated on January 18, 2005, as a public company limited by shares, operates a Combined Cycle thermal power plant on a build-own-operate (BOO) model. SEL began commercial operations on October 4, 2010. The plant, located in Muridke, District Sheikhupura, Punjab, has a gross capacity of 212 MW. The Company’s registered office is situated at 7-A/K, Main Boulevard, Gulberg II, Lahore.


Tariff

SECL's primary earnings stem from the generation tariff received from its power purchaser, the Central Power Purchasing Agency (CPPA-G) for a control period of 30 years form the date of COD. The reference generation tariff consists of two key components:1)Capacity Charge Component 2)Energy Charge Component  .The tariff is linked to the Pakistan Rupee-US Dollar exchange rate and adjusted for inflation using both US and Pakistan Consumer Price Indices (CPI). Escalable elements of the tariff include principal and interest repayments, return on equity (ROE), insurance costs, and fixed and variable operation & maintenance (O&M) expenses. Additionally, fuel prices and all associated taxes/levies are directly passed through to the power purchaser. According to NEPRA's determination, as of September 2024, the fuel cost component of the energy charge for RLNG fuel is set at 26.5156 PKR/kWh.


Return on Project

The Return on Equity (ROE), including Return on Equity During Construction (ROEDC), is set at 12% for foreign investors, with dollar indexation retained. For local investors, the rate is fixed at 17% in Pak Rupee calculated at exchange rate of PKR 148/USD, with no provision for future USD indexation.


Ownership
Ownership Structure

SECL is a subsidiary of Sapphire Fibers Limited, which holds a 68.11% stake in the Company. The remaining shares are distributed among Xenel Saudi Arabia (20%), Meezan Bank (5%), and high-net-worth individuals (5%).


Stability

SECL's ownership structure remains unchanged, with no anticipated changes in the foreseeable future. The Company's stability is reinforced by the involvement of the Sapphire Group and the presence of formal documentation outlining the family ownership structure, bodes well for the stability of the Company.


Business Acumen

The Sapphire Group has one of the largest vertically integrated textile set-ups in Pakistan with more than 30 production units. It also has interests in diversified sectors including Power, Dairy, Cement, and Investment companies.


Financial Strength

The financial strength of the sponsors is considered strong as the sponsors have well diversified profitable businesses.


Governance
Board Structure

The seven-member Board of Directors (BoD) is majorly composed of representatives from Sapphire Group, including the CEO, while Xenel is represented by one member. All the board members are seasoned professionals having interests in various sectors of the industry.


Members’ Profile

The BoD includes key figures such as Mr. Yousaf Abdullah, CEO of Sapphire Finishing Mills Limited (Sapphire Finishing Mills), and Mr. Shahid Abdullah, CEO of Sapphire Fibres Limited (Sapphire Fibres), along with other prominent members of the Sapphire Group. Their presence significantly enhances the Company’s strategic oversight and decision-making capabilities. The Board benefits from the diverse expertise of its members, each possessing substantial educational qualifications and relevant industry experience, thereby strengthening governance. Representing Xenel Saudi Arabia, Mr. Emran Mohammad A. Ali Reza adds an international perspective to the BoD.


Board Effectiveness

The Board has established two committees: the Audit Committee and the HR and Remuneration Committee, to ensure efficient and effective oversight of the Company’s operations. The participation of all board members in meetings during the year was satisfactory, reflecting their active engagement and commitment to governance.


Financial Transparency

M/s A.F Ferguson is the external auditor of the company. They have expressed an unqualified opinion on the Company’s financial statements for the year ended June 30, 2024.


Management
Organizational Structure

SECL has a lean management structure. The CEO is supported by a team of qualified and experienced professionals.


Management Team

Management control of the Company is held by Sapphire Fibres Limited, the largest shareholder. Mr. Shahid Abdullah, the CEO, leads the Company with over four decades of experience across various industrial sectors. Mr. Faisal Zia serves as the Director of the Energy Business, overseeing strategic energy initiatives. The finance function is headed by Mr. Muhammad Umer Rahi, the CFO of the Company, while Mr. Shahid Mehmood, the Technical Head Energy Business, is responsible for plant operations, managing day-to-day activities at the plant site


Effectiveness

The management of SECL primarily focuses on finance-related activities, while the operations and maintenance of the plant have been outsourced to General Electric (GE) through an O&M contract. To complement this arrangement, the Company has developed a team of technical personale at the plant site. These technicians hold bi-weekly and monthly meetings with GE personnel to strengthen and expand their knowledge of plant operations, ensuring continuous improvement and effective management of the power plant.


Control Environment

SECL take advantage of advanced I.T. solutions delivered comparatively better on many fronts. Moreover, quality of the I.T infrastructure and the breadth and depth of activities performed has remained well satisfactory.


Operational Risk
Power Purchase Agreement

SECL's key source of earnings is the revenue generated through sale of electricity to the power purchaser, CPPA-G. The Company receives the capacity payments if it meets the benchmark availability and is ready to provide electricity, even if no purchase order is placed by the Power Purchaser. The agreement term is 30 years, starting from the Commercial Operations Date (COD) in October 2010. However, in recent developments in Pakistan's power sector indicate that the Government of Pakistan (GoP) entered negotiations with Independent Power Producers (IPPs), including the Company, to explore potential adjustments in contractual arrangements. The modalities and outcomes of these negotiations are yet to be determined. If executed, the PPA and other agreements may need to be revised, potentially resulting in a demand-based revenue stream.


Operation and Maintenance

The Company has negotiated an O&M contract with GE started from COD in October 2010 up to the earlier of the time when the power station has run 188,000 Fired Hours and Oct 04, 2040.


Resource Risk

SECL power plant is fueled by Pipeline Quality Gas supplied by Sui Northern Pipelines Limited (SNGPL). SECL has signed an interim agreement in 2018 with SNGPL for supplying RLNG due to acute shortages of gas in the country. In case of non-availability of RLNG, company runs its plant on HSD


Insurance Cover

SECL has significant insurance coverage for property damage and business interruption. The insured values for damages include a property damage cover (upto PKR 61.504bln) & business interruption cover (up to PKR 5.3bln). Local insurance is covered by Adamjee Insurance Co and foreign insurance is covered by Lockton (MENA) Limited


Performance Risk
Industry Dynamics

FY-2024, Pakistan's power generation declined by 1.9%, totaling 127,160 GWh. This marks the second consecutive year of reduced output, driven by elevated electricity costs, rising inflation, and lower economic activity. The Country's power generation remains heavily reliant on thermal and hydel sources, contributing approx. 45% and 31%, respectively, in FY24. The share of nuclear energy has notably increased to approx.19% in FY24, while renewable energy sources continue to constitute a modest 5% of the total generation. Recently, the Government of Pakistan (GoP) resumed negotiations with Independent Power Producers (IPPs) and established a special task force to implement structural reforms in the power sector. The ongoing process aims to lower generation costs and make electricity more affordable, although the outcomes of these negotiations are yet to be seen.


Generation

Electricity produced during FY24 is 479GWh (FY23: 452GWh) as per the power demand posted by CPPA-G.


Performance Benchmark

Under the PPA, SECL is required to maintain an availability of 90-92%, while the actual availability during FY24, after considering scheduled and forced outages, was 100%. Additionally, the plant’s efficiency has been maintained according to agreed parameters .The impact of any declines in availability and efficiency are adjusted in capacity payments invoices.


Financial Risk
Financing Structure Analysis

The project capital structure comprised 25% equity (US$ 61mln) and 75% debt (US$ 183mln). Total project cost has been paid-off in 2020.


Liquidity Profile

As of June 2024, the Company’s trade receivables stood at PKR 12,109mln (FY23: PKR 12,161mln, FY22: PKR 8,878mln). The receivable days was increased in FY 24 from 202 days in FY 23  to  221 days, primarily due to delayed payments from the power purchaser. In line with this, net working capital days also rose to 189 days as of FY24 (FY23: 162 days, FY22: 151days), reflecting the higher outstanding receivables. To support its liquidity, the Company holds a liquid investment of approximately PKR 1095mln, strengthening its financial position


Working Capital Financing

The Company managed its working capital through a combination of internally generated cash and short-term working capital lines obtained from financial institutions. These facilities were primarily utilized for the procurement of gas from SNGPL. However, due to reduced demand from the power purchaser, aimed at optimizing the cost of the energy basket, the utilization of these lines remained low, averaging approximately 8% during FY24.


Cash Flow Analysis

SECL’s debt coverage ratio [FCFO / Gross Interest +CMLTD] remained very strong at 20.7x during FY24 (FY23: 11.4x, FY22: 7.1x), mainly due to low leveraged capital structure and improved internal free cash flow generation.


Capitalization

The Company has a low leveraged capital structure (FY24: 4.5%, FY23: 8.5%, FY22: 16.4%) mainly comprised of short term working capital lines.
 
 

Feb-25

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Sapphire Electric Company Limited

financial summary

(PKR mln)

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Sep-24
3M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 9,537 9,577 10,157 10,732
2. Investments 0 1,095 1,610 4,776
3. Related Party Exposure 198 191 183 176
4. Current Assets 15,777 15,539 15,166 11,019
a. Inventories 306 301 304 310
b. Trade Receivables 12,546 12,109 12,161 8,878
5. Total Assets 25,512 26,402 27,116 26,702
6. Current Liabilities 3,060 3,313 3,269 2,910
a. Trade Payables 1,977 2,160 1,952 2,820
7. Borrowings 558 1,032 2,029 3,909
8. Related Party Exposure 0 0 0 0
9. Non-Current Liabilities 0 0 0 0
10. Net Assets 21,895 22,058 21,818 19,883
11. Shareholders' Equity 21,895 22,058 21,818 19,883
B. INCOME STATEMENT
1. Sales 5,919 20,082 18,968 22,092
a. Cost of Good Sold (4,755) (17,084) (15,416) (19,477)
2. Gross Profit 1,165 2,998 3,552 2,614
a. Operating Expenses (31) (120) (116) (85)
3. Operating Profit 1,134 2,878 3,436 2,529
a. Non Operating Income or (Expense) 1 86 124 6
4. Profit or (Loss) before Interest and Tax 1,135 2,964 3,560 2,535
a. Total Finance Cost (26) (167) (352) (439)
b. Taxation 0 (13) (1) (0)
6. Net Income Or (Loss) 1,109 2,784 3,207 2,096
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 1,280 3,436 4,022 3,116
b. Net Cash from Operating Activities before Working Capital Changes 1,280 3,169 3,691 2,727
c. Changes in Working Capital (651) 65 (3,658) 4,775
1. Net Cash provided by Operating Activities 629 3,234 32 7,502
2. Net Cash (Used in) or Available From Investing Activities (112) 64 3,569 (3,598)
3. Net Cash (Used in) or Available From Financing Activities (1,272) (4,678) 254 (2,887)
4. Net Cash generated or (Used) during the period (755) (1,379) 3,855 1,017
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 17.9% 5.9% -14.1% 81.3%
b. Gross Profit Margin 19.7% 14.9% 18.7% 11.8%
c. Net Profit Margin 18.7% 13.9% 16.9% 9.5%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 10.6% 17.4% 1.9% 35.7%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 19.9% 12.5% 14.8% 10.6%
2. Working Capital Management
a. Gross Working Capital (Average Days) 195 226 208 183
b. Net Working Capital (Average Days) 163 189 162 151
c. Current Ratio (Current Assets / Current Liabilities) 5.2 4.7 4.6 3.8
3. Coverages
a. EBITDA / Finance Cost 49.1 20.7 11.4 7.1
b. FCFO / Finance Cost+CMLTB+Excess STB 49.1 20.6 11.4 7.1
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 0.0 0.0 0.0 0.0
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 2.5% 4.5% 8.5% 16.4%
b. Interest or Markup Payable (Days) 84.8 16.9 113.1 74.7
c. Entity Average Borrowing Rate 14.3% 16.3% 15.9% 9.6%

Feb-25

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Sapphire Electric Company Limited

rating scale

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Feb-25

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Sapphire Electric Company Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
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    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
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