ENGRO explores conventional sale for Thermal Energy Asset portfolio

February 26, 2024 (MLN): Engro Corporation Limited (PSX: ENGRO)'s earlier disclosed plans for restructuring and/or reorganization of its thermal energy assets under a separate wholly-owned holding company are not being pursued any further.

Instead, the company is now evaluating to execution of the divestment of thermal energy assets comprising of shareholding in Engro Powergen Qadirpur Limited, Engro Powergen Thar (Private) Limited and Sindh Engro Coal Mining Company Limited held via Engro Energy Limited through a sale of shares process, the company's filing on Monday revealed. 

The Securities Exchange Commission of Pakistan (SECP) in September 2019 granted specific exemptions to Independent Power Producers (IPPs) from the applicability of IFRS 9, IFRS 16 and IAS 21.

As a result of this, the debt component recovered from CPPA-G as part of the tariff approved by NEPRA is recorded as revenue in the Profit or Loss Statement over the life of the loan. However, the corresponding depreciation expense related to the IPP is recorded over the term of the Power Purchase Agreement (PPA).

The term of the loan is shorter than the term of the PPA resulting in higher Net Assets in the Consolidated Financial Statements of the Group.

Under the requirements of IAS 36, the Company has carried out an assessment of the recoverable amount of the thermal energy assets for Standalone and Consolidated Financial Statements.

Due to the specific accounting treatment for IPPs, as mentioned above, the Net Assets of the thermal energy assets in the Consolidated Financial Statements of the Group are higher than their recoverable amounts.

Accordingly, an accounting impact of Rs29,950 million (Owners’ Share: Rs13,295m) has been recognized in the consolidated financial statements for the year ended December 31, 2023.

The company recorded a fall of 21.72% YoY in its profits in 2023, with the company's after-tax profits clocking in at Rs36.09 billion [EPS: Rs38.6], compared to a profit of Rs46.11bn [EPS: Rs42.23] in the same period last year (SPLY).

In the standalone financial statements of the company for the year ended December 31, 2023, no impact has been recognized as the recoverable amount of thermal energy assets is significantly higher than their carrying amount.

The consummation of the proposed transaction remains subject to successful negotiations, execution of definitive agreements, receipt of corporate/regulatory approvals and lender consent.

"In case of any further material developments, the company shall keep the Exchange informed accordingly," the notification reads. 

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