Nishat Chunian’s liquidity management under crisis due to escalating inter-corporate debt: VIS

April 8, 2020: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A+/A-2’ to Nishat Chunian Power Limited (NCPL). Outlook on the assigned rating is ‘Stable’.

The medium to long-term rating of ‘A+’ reflects good credit quality and adequate protection factors. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and fundamental protection factors.

According to the Press Release issued by VIS, the ratings assigned to NCPL take into demand risk coverage under Power Purchase Agreement signed with CPPA-G (Central Power Purchasing Agency). Moreover, the Implementation Agreement provides a sovereign guarantee for cash flows, contingent upon adherence to stipulated performance benchmarks.

Ratings draw comfort from NCPL’s association with Nishat Chunian Group; one of the leading groups in Pakistan. Assessment of adequate financial profile entails, sizeable margins, sound debt coverage metrics and healthy cash flows indicating satisfactory debt servicing ability.

However, liquidity management remains a concern, given the escalating inter-corporate debt and inconsistent payment cycle exhibited by the power purchaser has led to higher utilization of short-term credit facilities; the same has a sizeable impact on the company’s bottom line on account of the high financial cost incurred. Therefore, the recovery of outstanding dues is considered essential to easing the pressure on liquidity.

The Operations and Maintenance of the company are in-house, the management team has depicted satisfactory performance since FY15. Further, upholding operational performance in line with agreed performance levels would remain a key rating driver. Moreover, the ratings will be revised if there is any change in the PPA.

VIS