PACRA maintains entity ratings of Nishat Power

September 25, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Nishat Power Limited (PSX: NPL) at "AA-" for the long term and "Al" for the short term with a stable outlook forecast, latest press release issued by PACRA showed.

The ratings reflect the strong business profile of NPL emanating from the demand risk coverage under the Power Purchase Agreement signed between the Central Power Purchasing Agency (CPPA-G) and the company.

Meanwhile, the implementation agreement provides a sovereign guarantee for cash flows, given adherence to agreed performance benchmarks.

Nishat Power continues to meet its availability and other performance benchmarks.

NPL, with in-house Operations and Maintenance (O&M), has a well-experienced team and has been demonstrating satisfactory performance.

Fuel supply risk is considered low as they procure from different suppliers with good credit terms.

During FY23, NPL generated 538GWh of electricity a decline of 32% (YOY), and subsequently recorded a revenue of Rs23.069 billion presenting a decline of 2.6% (YOY).

This decrease in generation is mainly attributed to the shift of electricity demand towards a less expensive source of generation i.e., Hydro, Solar, Wind, and Biogas from the power purchase in the wake of cost-effective energy basket.

Despite the fall in revenue, margins benefitted from less utilization of short-term borrowings and the appreciation of USD against PKR.

Currently leveraging stood at 4.1% representing short-term borrowing only (FY22:13.9%).

There is adequate cushion available to the company to meet its working capital requirement in its approved STB limits.

The ratings stemmed from the fact that the long-term debt of the company was fully paid successfully in June 2020.

Also, the company has a Power Purchase Agreement lasting till 2035.

Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important.

Accumulation of circular debt would pose a threat to the company’s ability to continue with this practice.

Furthermore, going forward delay in receiving the amounts from the Power purchaser remains a cause of concern.

However, the management ably supported by sponsors remains committed to sustaining improvement in the management of commercial obligations reflected by the timely and full repayment of long-debt.

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