Press Release

VIS Upgrades Entity Ratings of Zephyr Power (Pvt.) Limited

Karachi, November 26, 2020: VIS Credit Rating Company Limited (VIS) has upgraded entity ratings of Zephyr Power (Pvt.) Limited (ZPL) from ‘A-/A-2’ (Single A Minus/A-Two) to ‘A/A-2’ (Single A/A-Two). Long Term Rating of ‘A’ reflects good credit quality, adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-2’ indicates good certainty of timely payment and sound liquidity factors. Access to capital markets is good while risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating was announced on August 26, 2019.

Zephyr (Pvt.) Limited (ZPL) operates a 50 Megawatt (MW) wind-power plant (25 Wind Turbine Generators of 2.0MW each) situated in Gharo area, Thatta, Sindh. COD was achieved in Mar’19 while takeover by management from EPC contractor was completed in Oct’19.

Ratings upgrade takes into account ZPL’s demonstration of sound track record of successfully running plant operations since commencement of operations (COD), low business risk and improving financial profile as evident from healthy cash flow generation, sound debt coverage metrics and reduction in leverage indicators. Ratings also take into account the strong sponsor profile which comprises foreign investment by a DFI (wholly owned by UK Government) and other local equity shareholders. Further, presence of Debt Service Reserve Account (DSRA) and CPPA-G’s commitment of timely payment of receivables for debt servicing continues to provide comfort to the ratings.

Business risk profile draws support from long-term Operations & Maintenance (O&M) contract in place (with recourse to liquidity damages in case plant availability declines below minimum guaranteed threshold). Presence of (20 years) long-term Energy Purchase Agreement (EPA) with CPPA-G mitigates off-take risk while adequate insurance coverage is also in place. Given the healthy demand and efficient technology, the plant operated at higher than required capacity in FY20. Performance of the plant also remained satisfactory since COD with average plant availability and capacity factor remaining compliant with normative parameters as laid down in the EPA.

Overall liquidity profile remains strong on the back of healthy cash flow generation and sound debt coverage metrics; recent increase in receivables if not arrested may impact cash flows from operations (CFO). Leverage indicators despite depicting improvement in the outgoing fiscal year remain elevated. Going forward, given projected debt repayment and internal capital generation, leverage indicators are expected to decline. However, quantum of reduction will depend on the future dividend payout. Moreover, corporate governance framework has been strengthened in the ongoing year with the approval by board to enhance board size.

Given the country’s ever growing circular debt and capacity payment issue, the government has recently taken the initiative of re-negotiating with IPPs to revisit old contracts and tariffs. Discussions in this regard with ZPL are under way. Impact of the same on risk profile will be evaluated once finalized.

For further information on this rating announcement, please contact Mr. Muhammad Tabish (Ext: 205) or the undersigned (Ext. 306) at 021-35311861-70 or email at info@vis.com.pk




Faryal Ahmad Faheem
Deputy CEO

Applicable Criteria: Industrial Corporates (May 2016)
https://s3-us-west-2.amazonaws.com/backupsqlvis/docs/Corporate-Methodology-201904.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 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .