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The Pakistan Credit Rating Agency Limited

Date
30-Dec-2016
Analyst
Aisha Khalid
aisha@pacra.com

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

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Correlation between Long-term and Short-term rating (Jun 16) [View]
  • Methodology | Independent Power Producers (IPP) (Jun 16) [View]

Related Research

  • Sector Study | Independent Power Producers (Feb 16) [View]
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PACRA Maintains Entity Ratings of Chiniot Power Limited
 Rating Type Entity
Current
(30-Dec-2016)
 Action Maintain
 Long Term A
 Short Term A1
 Outlook Stable
 Rating Watch -

Chiniot Power Limited (CPL), a bagasse based IPP, achieved commissioning in Nov-15, well before required COD of Jun-16. CPL, with in-house Operations and Maintenance (O&M), has a well-experienced team. The company has adequate insurance coverage; providing comfort against operational risk factors. It has firm off-take agreements with NTDC (main buyer) and Ramzan Sugar Mills Limited (RSML), a group company. The Government of Pakistan has given payment guarantee against dues from NTDC. This along with the fact that CPL's financial burden is designed to be met on operations of around six months in a year is expected to keep eventual financial risk manageable. Revenues and cash flows are primarily dependent upon maintaining plant’s availability and capacity factors at adequate levels and also upon availability of bagasse, which it is buying from RSML. The Company has arrangements with other mills to cover additional requirement of bagasse. Since its CoD last year, the Company has outperformed its required parameters and has generated positive free cash flow from operations (FCFO). Meanwhile, better repayment behavior of NTDC to CPL provided comfort in managing working capital needs. To manage its working capital requirements, the Company used mix of internal cash flows and short-term borrowing.

Effective execution of plant operations by the in-house O&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.
About the Entity
CPL, a 62.4 MW co-generation bagasse based power plant with a final cost of PKR 8,993 mln, has debt to equity ratio of 75:25. It is situated adjacent to Ramzan Sugar Mills Limited (associate of the company), at Jhang Road near Chiniot, Pakistan. Sharif Group has recently acquired another sugar mill, which is expected to help CPL in better availability of fuel.

Mr. Suleman Shehbaz Sharif, Chairman and CEO of CPL, has 94% shareholding in the company. He is a member of Sharif Group. The group is engaged in the business of sugar, poultry feed and livestock. There are 12 companies in the group and are owned by individuals of Sharif family. Mr. Suleman Shehbaz Sharif is CEO of seven companies within the group.

CPL's three member board, including CEO, comprises the wife of Mr. Suleman Shehbaz Sharif, and Mr. Sajjad Anwar who is also the Business Head of the company.
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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