Press Release

VIS Reaffirms Entity Ratings of Punjab Thermal Power (Private) Limited

Karachi, October 02, 2024: VIS Credit Rating Company Limited (‘VIS’) has reaffirmed the entity ratings of Punjab Thermal Power (Private) Limited (‘PTPL’ or ‘the Company’) at from ‘AA/A-1’ (Double A/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' suggests Strongest likelihood of timely repayment of short-term obligations with outstanding liquidity factors. Outlook on the assigned ratings is ‘Stable’. Previous ratings action was announced on September 19, 2023.

PTPL was incorporated on June 08, 2017, as a private limited company by the Government of Punjab (‘GoPb’) through the Energy Department. It operates as a wholly owned entity of the GoPb and was established with the primary objective of setting up, operating, and managing a 1263.2 megawatt (MW) (Net: 1,242.7 MW) Re-gasified Liquefied Natural Gas (‘RLNG’) combined cycle thermal power plant at Haveli Bahadur Shah, near Trimmu barrage, Jhang, Punjab formed under Power Policy, 2015. The Company functions as an Independent Power Producer (‘IPP’). It was initially approved with ROE of 15% (Indexation with USD) and was later on reduced to 12% (Indexation with USD).

Assigned ratings take into account the Company’s low business risk profile, supported by a long-term Power Purchase Agreement (‘PPA’) and Implementation Agreement (‘IA’) with the Government of Pakistan through the Private Power and Infrastructure Board. The PPA's “Take or Pay” nature, coupled with capacity payments guaranteed by the government, mitigates the Company’s demand-side risk and financial exposure. The reduction in the return on equity (‘ROE’) from 15% to 12% in 2021, as part of the negotiations with the government, reflects a recalibration of financial expectations. Furthermore, the IA ensures repayment of the Company’s receivables in case of default by the power purchaser.

Assigned ratings also consider the company’s financial risk profile. Profitability has shown improvement post Commercial Operations Date (COD), driven by revenue from energy sales and capacity payments. The liquidity position remains adequate owing to government guaranteed cash flow stream under the agreement upon meeting certain performance benchmarks and sponsor support agreement between the Company and its Long Term Financiers for the provision of covering cost overruns. The capitalization profile, characterized by a high debt to-equity ratio consistent with industry norms, reflects the Company’s alignment with regulatory guidelines. Coverage ratios have improved, indicating enhanced debt servicing capability post-COD. However, the risk from the circular debt crisis in the energy sector remains a potential challenge.

Going forward, PTPL's ratings will be sensitive to the continued effectiveness of the macroeconomic hedging component of its agreement, including tariff indexation and cost pass-throughs. Assigned ratings will also be affected by any major changes in regulatory frameworks or substantial alterations in Government policies regarding the energy sector.

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 .