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The Pakistan Credit Rating Agency Limited

Date
16-Oct-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Faizan Arif
faizan.sufi@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Correlation between long-term and short-term rating scale (Jun 17) [View]
  • Methodology | Independent Power Producers (IPP) (May 17) [View]

Related Research

  • Sector Study | Power Generation (Mar 17) [View]
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PACRA Upgrades Entity Ratings of Foundation Power Company Daharki Limited
 Rating Type Entity
Current
(16-Oct-2017)
Previous
(24-Mar-2017)
 Action Upgrade Maintain
 Long Term AA- A+
 Short Term A1+ A1
 Outlook Stable Positive
 Rating Watch - -

The ratings reflect strong business profile of FPCDL emanating from the demand risk coverage under Power Purchase Agreement signed between NTDC (through Central Power Purchasing Agency) and the company. Meanwhile, the Implementation Agreement provides sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. The ratings incorporate low operational risk, a result of the performance of KEPCO - the O&M operator. Fuel of the plant is 'low BTU' gas, which is supplied by an associate - Mari Petroleum Company Limited (40% owned by Fauji Foundation). Thus fuel supply risk is considered low. Although there are delays in payments from power purchaser, the company manages the impact by aligning the payments to fuel supplier with its receipts. This keeps working capital needs under check. Short-term borrowing lines are available and mainly used to fund any short-fall in working capital requirements. Moreover, lately FPCDL has been repaying its debt repayments (Principal and Markup) on time without availing benefit of forbearance period. The company's association with Fauji Foundation (FF) provides comfort to the ratings.

Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important. Accumulation of circular debt would pose threat to the company’s ability to continue with this practice. However, the management ably supported by sponosrs remains committed to sustain improvement in management of commercial obligations and timely debt repayments. Material cushion in un-utilized lines provide comfort.
About the Entity
FPCDL was established in 2005 under the Companies Ordinance 1984 as an independent power
producer. The company is operating a combined cycle power plant with a net initial capacity of
180MW. FPCDL's plant commenced operations in May 2011. FPCDL is majority owned by Daharki Power Holdings Limited, which, in turn is owned by FF (81%) and Asian Development Bank (ADB) (19%).

The six member Board, comprising five representatives from FF and one from ADB, provides
adequate guidance to the company. Lt. Gen. Khalid Nawaz Khan (Retd.) Managing Director of FF chairs the board. Lt. Gen. Jamil Haider (Retd.), Managing Director since 2015, is supported by an experienced senior management team.
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.
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