PACRA assigns ‘A’ rating to Mughal Energy Limited

December 04, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has assigned a long-term rating of 'A' and a short-term rating of 'A2' to Mughal Energy Limited (GEMMEL), according to the latest press release issued by PACRA.

GEMMEL was incorporated as a public unlisted company in Pakistan on August 19, 2012. In November 2023, GEMMEL was acquired by Mughal Iron & Steel Industries Limited (MISIL) and became a wholly owned subsidiary. 

The company is in the process of installing a 36.5 MW hybrid captive power plant that can operate on a mix of indigenous and imported Coal, and Bark, primarily intended to supply electricity to MISIL.

GEMMEL has been granted a 30-year generation license by the National Electric Power Regulatory Authority (NEPRA), effective from the Commercial Operation Date (COD).

The project's total estimated cost is approx. Rs6.5 billion, with financing planned through a 65:35 debt-to-equity ratio.

The company has already secured the plant equipment and land for the site using equity contributions from the sponsors, effectively reducing procurement risks.

Debt financing is designated for the installation and testing of the plant for commercial operations.

Off-take risk is mitigated by a long-term power purchase agreement already signed with MISIL.

The company has engaged local contractors for civil work, installation, fabrication, and testing at the site, with an estimated timeline of 14 months for completion.

The plant is expected to be commissioned within 18 months from the construction start which was October 2023.

However, this timeline may be extended, given the current progress report indicating that GEMMEL has achieved 36.5% progress compared to the planned 46%.

Local EPC insulates against the risk of foreign EPC's travel risk. As of November 2024, the civil work is nearing completion, and installation is expected to begin soon.

The company is currently in the process of securing the remaining funds through a long-term Sukuk issuance of PKR 2.5bln.

Once operational, the GEMMEL plant will enable MISIL to leverage in-house power generation, resulting in reduced electricity costs.

Consequently, this will enhance margins by lowering overall production costs a critical advantage for MISIL.

The “Developing Outlook” reflects the ongoing process of securing the required financing and highlights the period until the plant's commissioning.

The sponsor has approved corporate guarantees with a limit of Rs6bln in favor of GEMMEL to secure financing for five years.

As of September 30, 2024, MISIL has issued guarantees amounting to Rs1.539bn under this approved limit.

The ratings are contingent upon the management's ability to meet completion milestones.

However, the assigned ratings take into account the strength and business acumen of the group. Going forward, the timely achievement of the COD, as per the expected milestones, remains crucial to uphold the assigned ratings.

Copyright Mettis Link News