Sound financial profile of NCPL provides comfort to the ratings -PACRA

September 17, 2019: Pakistan Credit Rating Agency (PACRA) has assigned initial entity rating of ‘A +’ for long term to Nishat Chunian Power Limited, while the short term rating is ‘A1’. Meanwhile the outlook forecasted on this rating is ‘stable’.

As per an official press release by the agency on this occasion, the rating reflects the company's strong business profile, emanating from the demand risk coverage under Power Purchase Agreement signed between CPPA-G (Central Power Purchasing Agency) and the company.

Meanwhile, the Implementation Agreement provides sovereign guarantee for cash flows, given adherence to agreed performance benchmarks. Nevertheless, delayed payments from the power purchaser remained a challenge. Despite higher receivable days the entity managed to sustain its financial strength.

Fuel supply risk is considered adequate as they procure from different suppliers with good credit terms; being managed since 2011. The company manages the impact by aligning the payments to fuel supplier with its receipts. This keeps working capital needs under check. Short term borrowing lines are available and mainly used to fund any short-fall in working capital requirements. As of March-19, short term lines utilization stood at 53%. It continues to meet its availability (88%) and efficiency (45%) benchmarks.

Given the liquidity situation, utilization is imputed to go up. Settlement of overdue receivables is crucial. The company has an outstanding long term debt of PKR 2,710mln as at end-June19, payable till June 2020. Sound financial profile of Nishat Chunian Group; the major sponsor, provides comfort to the ratings.

Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important. Accumulation of circular debt would pose threat to the company’s ability to continue with this practice. However, the management ably supported by sponsors’ remains committed to sustain improvement in management of commercial obligations and timely debt repayments.