Power Sector: Payment of over-due receivables of IPPs expected in 3 installments

November 17, 2020 (MLN): The Government is willing to pay the over-due receivables of IPPs in 3 installments, wherein, the first installment which is expected to be around 25% to 30% of the receivables, will be paid at the time of signing the new PPAs.

Taurus Securities, in its report on power sector update highlighted the aforesaid expected development, adding that as per news sources the remaining two installments will then be paid over the next 12 & 24 months.

Moreover, the Government has  already drafted five amended PPAs. This progress can resolve liquidity issues of the power sector, the report stated.

In light of the above expected development, an improvement in the dividends payouts of IPPs can be anticipated. However, the scenario may be different for each of them based on their respective financial positions.

For Hub Power Company (HUBC), the report stated that the Company is likely to utilize majority of its funds to meet further equity requirements of TNPL & TEL, while a decent increase in the payouts can be expected. According to an estimate around Rs 10 billion is still needed for TNPL & TEL equity investments, while the first installment of overdues receipt is expected to be Rs 24 billion. Similarly, a higher dividend payout can be expected during FY22, post second installment of 37.5%.

With regards to Kot Addu Power Company Limited (KAPCO), which over the last few quarters is more focused towards repayment of its short term borrowings and trade payables, its short-term borrowing stands at Rs 40 billion at the end of 1QFY21. While the estimated receipt of 1st installment is around Rs 27 billion. Considering this, a healthy dividend is expected from the second installment, which is expected to be due during FY22, the report said.

The report further underscored that any additional dividend during CY21 from  Engro Powergen Qadirpur Limited (EPQL) is unlikley, as it holds high trade payables which have to be paid in case payment is received from the Government. Similarly, an overhaul is also planned during CY21, which may require significant cash outflow.

On the other hand, Nishat Power Limited (NPL) has comparatively lower short term borrowings, enabling the company to pay a decent dividend during FY21, which may increase significantly for FY22,  as the company’s borrowings stand at Rs 5.6 billion as at 1QFY21, whereas, the estimated first installment of NPL is Rs 4.7 billion.

Nishat Chunian Power Limited (NCPL)’s  borrowings as of 1QFY21, stand at Rs 10.3 billion, while its first installment is expected to be around Rs 5.1 billion. Thus, it will be optimistic to expect a higher dividend from NCPL, whose profitability is already being eaten up due to the interest burden, the report cited.

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