September 28, 2023 (MLN): The VIS Credit Rating Company Limited (PSX: NCPL) has reaffirmed the entity ratings of Nishat Chunian Power Limited (PSX: BTL) at 'A+' for long-term and 'A-2' for short-term, with a stable outlook forecast, latest press release issued by VIS stated.
Long-term rating of ‘A+’ signifies good credit quality; protection factors are adequate.
Short-term rating of ‘A-2’ denotes good certainty of timely payments.
The previous rating action was announced on May 16, 2022.
NCPL has been operating a 200-megawatt (MW) RFO-based power plant since 2001.
Assigned ratings take into account the 25-year power purchase agreement with CPPA-G, which will expire in 2035 while the ‘take or pay’ arrangement alleviates off-take risk.
In addition, the ‘Implementation Agreement’ provides a 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.
NCPL procures fuel from different local vendors whereas, the price risk is mitigated since the cost is a pass-through item as per the tariff, subject to achieving the PPA stipulated parameters.
During FY23, the company ceased to be a subsidiary of Nishat Chunian Limited (NCL), and its shares were transferred amongst members of NCL.
During FY23, NCPL’s net sales were reported lower because of a decline in power dispatched to the CPPA-G due to lower demand stemming from the overall economic downturn.
However, as a result of a higher proportion of capacity purchase price component, gross margins have improved notably.
Similarly, net profitability was also recorded higher in the outgoing year. Post signing the PPA Amendment Agreement in October 2021, NCPL received settlement of outstanding old receivables in FY22.
However, the circular debt issue has continued to stress short-term liquidity in the ongoing year, as witnessed in an increase in overdue receivables beyond 6 months, as of August 2023.
With growth in profitability and lower outstanding short-term loans, cash flow coverages improved by the end of FY23.
The financial risk profile derives comfort from a long-term debt-free balance sheet.
Gearing ratio and leverage were reported lower and are expected to remain manageable, going forward as well.
Given the unfavorable position in the merit order list due to the relatively higher cost of generation amidst the addition of new efficient and cheaper power projects in the country’s generation capacity base, NCPL’s dispatch is likely to be impacted in the ongoing year.
Moreover, the country’s power demand is expected to decrease due to current macroeconomic challenges including inflation, power price hikes and slower economic growth.
Copyright Mettis Link News
Posted on: 2023-09-28T10:29:45+05:00
