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Tuesday, February 20th, 2018

Pakistan Credit Rating Agency Limited Upgrades Entity Ratings of Chiniot Power Limited

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by January 18, 2018 General

Lahore, January 18, 2018 (PPI-OT):Chiniot Power Limited, a bagasse based IPP, was set up under 2006 Renewable Energy Policy. Chiniot Power, with in-house Operations and Maintenance (O and M), has a well-experienced team. The company has desired insurance coverage; providing comfort against operational risk factors. It has firm off-take agreements with NTDC (main buyer) and Ramzan Sugar Mills Limited, a group company.

The Government of Pakistan has given payment guarantee against dues from NTDC, subject to adherence to agreed parameters. This, along with the fact that Chiniot Power’s financial burden is designed to be met on operations of around six months in a year, is expected to keep financial risk manageable. Revenues and cash flows are primarily dependent upon maintaining plant’s availability and capacity factors at adequate levels.

This, in turns, requires timely availability of bagasse, which it is buying mainly from Ramzan Sugar Mills (~5.5 months need), minimizing fuel supply risk. The Company has arrangements with other mills to cover additional requirement of bagasse. Fuel cost in tariff is linked to international coal price. To date, the delta between coal and bagasse cost is favourable. This is not likely to change significantly. Since its CoD, the Company has outperformed its required parameters and has generated positive free cash flow from operations.

The company’s availability (required: 45%) and efficiency (required: 24.5%) remained above required benchmarks. Meanwhile, better repayment behaviour of NTDC to Chiniot Power provided comfort in managing its finances. To manage its working capital requirements, the Company used mix of internal cash flows and short-term borrowing. Short-term lines are fully utilized at end-FY17 to procure bagasse for off-season.

Repayment of Chiniot Power’s long-term debt is supported by monthly reserve build-up to fund quarterly installment. Further comfort is available through stand by letter of credit covering one upcoming installment. Meanwhile, Company is committed to build reserves (out of its profits) to cover whole debt servicing. This build-up is expected to be achieved by end-FY18; cushioning financial risk greatly.

Improving, indeed aligning, build-up of DSRA from internal sources, receipt pattern from power purchaser, debt repayment behaviour and liquidity cushion would impact the directions of rating Effective execution of plant operations by the in-house O and M team would remain important. Furthermore, external factors such as any adverse changes in the regulatory framework and weakening of financial profile of the company owing to delays in cash flow receipts, may impact the ratings.

For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com

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