November 11, 2020: Pakistan Credit Rating Agency (PACRA) has assigned initial entity ratings to Gul Ahmed Energy Limited (GAEL) at A- for long-term and A2 for short-term, with a Stable outlook forecast.
Gul Ahmed Energy’s Power Purchase Agreement (PPA) with Karachi-Electric (KE), expired in November 2019. Recently, National Electric Power Regulatory Authority (NEPRA) has approved the tariff of GAEL for three years which is contingent till the time CPPA-G/NTDC are willing and capable of supplying equivalent additional power to KE.
Under current tariff (i) the Company will have a 'take and pay' tariff by virtue of which the Company will generate revenue only when electricity is supplied to the power purchaser i.e. K.electric and other bulk purchasers (ii) Fuel procurement will be the responsibility of GAEL (iii) No liquidated damages relating to fuel supply / electricity supply will be applicable on either party.
The Company is in negotiation with KE for finalization of PPA. The Company’s project debt has been paid and it has not procured any short-term facility, consequently the Company finances its working capital through its operations.
GAEL holds short term investment in mutual funds amounting to PKR 5.1bln as at 31 Mar, 2020 which, being much beyond the operational requirement of the Company, lends extra cushion. Furthermore, GAEL’s controlling interest in the 3 subsidiaries it owns is noted as i) Gul Ahmed Wind Power Limited 50MW which is operational since 2016, ii) Gul Ahmed Electric Limited 50MW which has achieved financial close in 2019, has subsequently achieved a Construction Start Date in July, 2020 and shall be commencing commercial operations on November, 2021and iii) Gul Ahmed Solar Power Limited 50MW which has obtained Letter of Intent from Energy Department, Government of Sindh. GAEL's Leverage stands at virtually zero, as it does not have any sort of borrowings (neither long term nor short term).
The ratings have a stable outlook owing to the already determined tariff. The management is confident based on rational argument as to the finalization of PPA and continued operations of the Company.
Comfort can be drawn from Company’s liquid cash position and low leveraged balance sheet and no working capital lines utilization as at 31 Mar 2020. Although well-managed, in-house O&M activities expose the company to operational risk; thus upholding strong operational performance would remain a key driver of the ratings.
Meanwhile, the determination of PPA is the final stages, while timely finalization of the same is essential for the ratings.
PACRA
37974
