VIS assigns long-term rating of A+ to NCPL on good credit quality

May 18, 2022: VIS Credit Rating Company Limited (VIS) has assigned initial entity ratings of ‘A+/A-2’ (Single A Plus/A-Two) to Nishat Chunian Power Limited (NCPL).

Long-term rating of ‘A+’ signifies good credit quality; Protection factors are adequate while risk factors may vary with possible changes in the economy. Short-term rating of ‘A-2’ denotes good certainty of timely payments coupled with sound liquidity and company fundamentals. Outlook on the assigned ratings is ‘Stable’.

Nishat Chunian Power Limited (NCPL), a subsidiary of Nishat Chunian Limited, has been operating a 200 Megawatt (MW) RFO-based power plant for more than a decade. The plant is situated in District Kasur, Punjab. Assigned ratings takes into account the 25-year power purchase agreement with CPPA-G, which will expire in 2035 while ‘take or pay’ arrangement alleviates off-take risk. In addition, ‘Implementation Agreement’ provides sovereign guarantee for cash flows, contingent upon adherence to stipulated performance benchmarks. Ratings also draw comfort from the company’s association with Nishat Chunian Group; one of the leading groups in Pakistan with sizable financial strength and presence in textile and power generation. An experienced in-house team is managing operations and maintenance (O&M) of the plant and has demonstrated a satisfactory operating track record.

Ratings further take note of developments with regards to amendments in existing contractual arrangements, which mainly entails settlement of long outstanding dues (first installment of 40% is received while second installment of remaining 60% is committed to be paid by Sep’22), discounts in tariff components, sharing of future savings in fuel and O&M, reduction in delayed payment rate and conversion of PPA to 'take and pay' basis when CTA is fully implemented. In addition, dispute relating to withheld capacity payment was settled by extending the PPA term by 75 days.

Sales revenue has declined as long-term loan repayment component of the capacity tariff ceased (with effect from July’20), which also significantly impacted profitability margins. Retirement of entire project-related LT debt liability (last installment paid in Nov’20) eased pressure on liquidity while debt coverage metrics have remained strong. Given the same, leverage indictors have also depicted considerable improvement. On the flipside, build-up of receivables, if not arrested may impact cash flows from operations, going forward. In view of funding cash cycle delays, NCPL has not paid any dividend since last two years. Going forward, maintenance of performance levels in line with benchmarks would remain a key rating driver.

VIS