Press Release

VIS Reaffirms Entity Ratings of Engro Powergen Qadirpur Limited

Karachi, July 14, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Engro Powergen Qadirpur Limited (EPQL) at ‘AA-/A-1’ (Double A Minus/A-One). The long-term rating of ‘AA-’ signifies high credit quality; protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. The short-term rating of ‘A-1’ signifies high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on June 23, 2021.
The assigned ratings to EPQL take into account low business risk profile of the Company underpinned by inking of 25-year long a power purchase agreement (PPA) with ‘take or pay’ provision with Central Power Purchasing Agency (CPPA-G) from Commercial Operations Date (COD). Moreover, the Implementation Agreement (IA) was signed between the Islamic Republic of Pakistan (GoP) through Private Power Infrastructure Board (PPIB) and EPQL in 2007. Presence of long-term PPA with guaranteed capacity payments mitigates off-take risk as obligations of power purchaser are backed by sovereign guarantee. The ratings incorporate sound financial profile and sizable experience of the sponsor, Engro Energy Limited. The ratings take note that the Operations and Maintenance was discontinued with Engro Energy Services Limited and from ongoing year’s start will be done in house. Further, fuel supply and price risks are mitigated due to long-term supply contract and cost recovery mechanism built in the tariff. Performance of the plant has remained compliant with normative parameters as laid down in the PPA. Going forward, upholding operational performance in line with agreed performance levels would remain a key-rating driver. As projected in the IA, EPQL is facing gas curtailment from Qadirpur gas field as it is depleting therefore the plant is made available on mixed mode i.e. combination of gas and high speed diesel.

Assessment of financial risk profile incorporates sound debt coverage metrics and healthy cash flows in relation to outstanding debt repayments. Further the ratings take comfort from master agreement signed with the GoP leading to improved liquidity indicators as a sizeable amount of outstanding trade debts were received during the rating review period. Liquidity profile also remained well managed through effective working capital management. The ratings reflect long-term debt free balance sheet of the company as all long-term borrowings matured in FY20 in line with completion of 10-year term. Subsequently, the margins have trended downwards in line with lower capacity payments received due to discontinuation of debt servicing component. Further, the leverage indicators have increased slightly on a timeline basis owing to higher utilization of short-term funding to meet working capital requirements during the rating review period. The cash coverages and leverage indicators are expected to improve during the rating horizon on account of sizable profit generation; the projected improvement in the aforementioned is captured in the assigned rating. Going forward, ratings remain dependent on sustained efficiency levels and corresponding profitability indicators.

For further information on this rating announcement, please contact Ms. Maham Qasim (042-35723411-13, Ext. 8010) and/or the undersigned at 021-35311861-66 (Ext. 207) or email at .

Sara Ahmed

Applicable rating criterion: Corporates (August 2021)

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