Press Release

VIS Maintains Entity Ratings of Engro Powergen Qadirpur Limited

Karachi, September 04, 2024: VIS Credit Rating Company Limited (‘VIS’) has maintained entity ratings of Engro Powergen Qadirpur Limited ('EPQL’ or 'the Company’) at 'AA-/A-1' (‘Double A minus/A-One’). Medium to long term rating of 'AA-' indicates high credit quality; Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. Short-term rating of 'A-1' signifies strong likelihood of timely repayment of short-term obligations with excellent liquidity factors. Outlook on the assigned ratings has been changed to ‘Stable’ from ‘Positive’. Previous Rating action was announced on October 24, 2023.

EPQL, incorporated in 2006, operates a 226.52 MW combined cycle power plant under Pakistan's 2002 Power Policy. Commercial operations began in 2010, with electricity supplied to the Power Purchaser under a 25-year Power Purchase Agreement. The plant converts low BTU, high sulfur permeate gas into electricity. EPQL is 68.9% owned by Engro Energy Limited and was listed on the Pakistan Stock Exchange in 2014. Whereas, Engro Energy Limited is a wholly owned subsidiary of Engro Corporation.

Assigned ratings consider the low business risk profile of EPQL, underpinned by a long-term Power Purchase Agreement (PPA) with CPPA-G, effective for 25 years from COD. The stability is further reinforced by an Implementation Agreement with the Government of Pakistan, ensuring capacity payments and mitigating credit risk through government backing. These agreements mitigate risks related to volatility in offtake and enhance the predictability of operational revenue. The outlook on the ratings takes into consideration the ongoing sponsorship change of the Company and will be reviewed upon completion of the transaction.

Ratings also take into account the financial profiles of the Company. The profitability profile benefits from tariff indexations that adjust for inflation, exchange rate and other variations, preserving margin consistency amid macroeconomic changes. The capitalization profile remains conservative with a strategy centered around managing short-term debt to address liquidity gaps caused by sector-wide challenges. Liquidity is supported by a structured cash conversion cycle and sovereign guarantees on receivables. Coverage is deemed sufficient with mechanisms in place to compensate for delayed payments.

Going forward, EPQL's ratings will be sensitive to the continued effectiveness of the macroeconomic hedging component of its agreement, including tariff indexation and cost pass-throughs, and management’s ability to address fuel supply risks amidst declining natural reserves. Assigned ratings will also be affected by any major changes in regulatory frameworks or substantial alterations in the energy sector’s conditions.

For further information on this ratings announcement, please contact on 021-35311861-64 or email at info@vis.com.pk.










Applicable Rating Criteria:
Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .