Press Release

VIS Reaffirms Entity Ratings of Rousch (Pakistan) Power Limited

Karachi, June 24, 2021: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Rousch (Pakistan) Power Limited (RPPL) at ‘AA/A-1’ (Double A/A-One). The medium to long-term rating of ‘AA’ denotes high credit quality coupled with strong protection factors. Moreover, risk factors may vary slightly with possible changes in the economy. The short-term rating of ‘A-1’ denotes high certainty of timely payment, liquidity factors are excellent and supported by good fundamental protection factors. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on July 8, 2020.

The principal activity of RPPL is to generate and supply electricity to Central Power Purchasing Agency (Guarantee) Limited (CPPA-G) through its combined cycle thermal power plant, having a gross capacity of 450 MW. The assigned ratings takes into account strong ownership profile of the company, with Power Management Company (Private) Limited - a part of Descon Group - and Siemens Project Ventures of Germany being the major shareholders. The business risk profile is underpinned by low off-take risk due to take or pay tariff, whereby RPPL is eligible for guaranteed capacity payments. During the period under review, we have noted a decline in despatch demand from offtaker, as a result of which plant utilization factor has dropped. However, given that capacity payments are guaranteed, impact on profits and funds from operations (FFO) remained limited.

Recently in August’2020, RPPL and the Committee for Negotiation with IPPs formed by Government of Pakistan, executed a Memorandum of Understanding (MoU). In accordance with the MoU, RPPL has agreed on 11% reduction in capacity payments and variable O&M, among other clauses. As a result of the revision in agreement with CPPA-G, RPPL’s profitability indicators will be slightly lower going forward, albeit are considered to be adequate. However, in line with the agreement, the issue of long outstanding receivables has been assuaged, as RPPL’s receiving 40% of its receivables from the off taker in June 2021, with an agreement of full settlement within 6 months.

With the final payment of long-term debt in 2019, lower interest charge and largely stable FFO, the company’s debt servicing ability is considered sound. Minimal leverage and reduction in trade debts are viewed as positive rating drivers. Debt profile comprises short-term borrowings only, which have been availed to meet working capital requirements, mainly on account of accumulation of receivables from the off taker. While the extension of interim gas supply agreement has been executed , fuel supply risk will be completely mitigated upon finalization of long-term GSA. Arrangement of the same is included in the agreement with the off taker, and is expected to be concluded in the coming years. VIS will continue to monitor the developments in this regard, as and when these materialize.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.




Javed Callea
Advisor
Applicable Rating Criteria: Industrial Corporates (April 2019)
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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .