JCR-VIS assigns Initial Entity Ratings of AA-/A-1 to FFBL Power Company Ltd

JCR-VIS Credit Rating Company Limited has assigned initial entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to FFBL Power Company Limited (FPCL).

Outlook on the assigned ratings is ‘Stable’.

The assigned ratings take into account moderate business risk, strong financial risk profile and sound corporate governance infrastructure of FPCL. Ratings also draw support from strong sponsor profile of the Company with FPCL being a subsidiary of Fauji Fertilizer Bin Qasim Limited (FFBL) which holds 75% shareholding in the company while the remaining 25% shares are owned by Fauji Foundation. Strong sponsor support is also evident from corporate guarantee by FFBL, against termination of K-Electric Limited (KE) Power Purchase Agreement (PPA), for timely repayment of debt raised by FPCL.

FPCL’s 118 Megawatt (MW) (Net Capacity: 103 MW) coal based power plant is amongst the first coal based projects to be operational in Pakistan and is located within the FFBL complex at Port Qasim. FPCL was incorporated to support the energy requirements of FFBL as a substitute of natural gas fuel based system. Moreover, the Company contributes a sizeable portion of its generating capacity to national grid via KE. The plant was constructed on a non-EPC basis; it commenced commercial operations on May 19, 2017. Operation and Maintenance (O&M) of the project is in house and is being managed by the FPCL team.

Business risk profile draws support from experience profile of in-house O&M team and track record of compliance with normative parameters stipulated in PPA since commencement of operations. Moreover, Fuel Supply and Price Risk is limited due to long-term supply contract and cost pass through mechanism built in the tariff. Demand Risk has been assessed to be limited due to relatively high position in KE’s merit order along with dispatch guarantees from KE and firm commitment for off-take from FFBL. 

Assessment of financial risk profile incorporates strong liquidity indicators as evident from healthy cash flows and strong debt servicing ability. Favorable working capital cycle and limited exposure to circular debt (with timely repayments by both FFBL and KE) also support assessment of liquidity profile of FPCL. With repayment of outstanding debt and increasing internal capital generation, leverage indicators are projected to decline over the rating horizon. Going forward, ratings will remain dependent upon adherence to key financial benchmarks for the assigned ratings.