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The Pakistan Credit Rating Agency Limited

Date
22-Dec-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 Maintains Entity Ratings of Master Wind Energy Limited
 Rating Type Entity
Current
(22-Dec-2017)
Previous
(30-May-2017)
 Action Maintain Initial
 Long Term A A
 Short Term A1 A1
 Outlook Stable Stable
 Rating Watch - -

Master Group, pioneers of foam products, has set up a 52.8MW wind power plant – Master Wind Energy Limited. The rating incorporates the commissioning of the plant, achieved on 14th October 2016, tariff true up and commencement of billing/receipts mechanism. The project revenues and cash flows are exposed to two main risks. First; wind risk. Under the upfront tariff regime, any variability in wind speeds is to be borne by the Company, due to which its cash flows may face seasonality. However, historical wind speeds provide comfort that Master Wind would be able to generate enough cash flows to keep its financial risk manageable. Moreover, it has DSRA mechanism to manage liquidity movements. Second; operational risk. Comfort is drawn from General Electric International Inc. – the O&M operator – having both international and local market experience. If the Company maintains its availability as per contract and is ready to deliver electricity to NTDC, NTDC is liable to pay the whole tariff even if no purchase is done. The Government of Pakistan has provided a sovereign guarantee against dues from NTDC. The Company has adequate insurance coverage. However, the Company’s ability to manage contracted parameters over multiple wind cycles is yet to be seen. The company’s reserve build-up mechanism, DSRA fully funded through cash and PSRA funded via SBLC providing coverage of more than one time on its financial obligations till maturity provides comfort to the ratings.

Upholding operational performance in line with agreed performance levels is important. Improving, indeed aligning, build-up of DSRA from internal sources, receipt pattern from power purchaser, debt repayment behavior and liquidity cushion would impact the directions of ratings. External factors such as any adverse changes in the regulatory framework and weakening of financial profile may impact negatively.
About the Entity
Master Wind Energy Limited, incorporated in May 2005, is a Renewable Energy Independent Power Producer (RE IPP) operating under the Renewable Energy Policy 2006 by AEDB. The 52.8MW wind farm is set up in Jhimpir, Sindh. The total cost of the project was USD 132.3mln. Debt financing constitutes 75% of the project cost i.e. USD 99.2mln, which is financed from local and foreign financial institutions equally. The overall facility has a ten year repayment period commencing Feb-17, with the second payment in Aug-17 to align the repayment cycle to semi -annual instalments. The project was commissioned on 14th October 2016.

Master Group has a long history spanning over 50 years. The flagship company Master Enterprises (Pvt.) Ltd established in the year 1963, deals in foam products. The Group gradually diversified in various industries with operations across textile, engineering, automobile and retail sector.

Master Wind’s Board of Directors (BoD) comprises four members, including the Chairman and Managing Director. Mr. Shahzad Malik is the MD of Master Wind since 2011, assisted by an experienced 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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