Analyst
Andleeb Zahra
andleeb.zahra@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA maintains entity Ratings of Sindh Engro Coal Mining Company
Rating Type | Entity | |
Current (19-Jul-24 ) |
Previous (19-Jul-23 ) |
|
Action | Maintain | Maintain |
Long Term | AA | AA |
Short Term | A1+ | A1+ |
Outlook | Stable | Stable |
Rating Watch | - | - |
The Rating reflects the ownership stake of Sindh Government in the Company (Sindh Engro Coal Mining Company’s/SECMC) along with strategic importance of the project for sustainable energy solution of the Country. The Company's sponsors Engro Energy Limited and the Habib Bank Limited have entered into a definitive agreement with Liberty Power Holding Limited, other parties acting in concert and the Hub Power Company Limited for the sale of 11.9% and 9.5% of the issued share capital of the Company. The transaction is in process and the impacts are yet to be seen. SECMC has leased Block-II (out of 12 blocks) of Thar, for the period of thirty (30) years, which can be used to produce 5,000 MW for fifty (50) years. The Policy for Coal Tariff Determination offers a guaranteed internal rate of return, cost indexation and pass-through tariff structure for SECMC. Business risk is considered low, exhibited by demand risk coverage as SECMC has signed a Coal Supply Agreements with companies, Engro Powergen Thar Limited (EPTL) for annual supply of 3.8 million tonnes of coal for Phase-I and with Thal Nova Power Thar (Private) Limited (TNPTL) and Thar Energy Limited (TEL) for annual supply of 1.9 million tonnes of coal to each for Phase II and with Lucky Electric Power for annual supply of 3.8 million tonnes of coal for Phase-III. After successful commissioning of Phase-I on 10th July 2019, the COD of Phase-I is achieved on September 30, 2022. Project Completion date (PCD) of Phase-I has been announced in May 2023. Phase-III is in pipeline and its financial close is expected in near future. SECMC has reported its topline of PKR 24bln during 1QCY24. The Company incurred net profit of PKR 11.2bln. Strong equity base and liquidity support the timely repayment of phase-I project debt.
Adherence to good financial discipline towards both financial and commercial obligations is considered a strength. Meanwhile, upholding strong operational performance in line with agreed performance levels remain important. Effective management of the project, favorable regulatory regime, and consistency in related policies remain critical for the Ratings. The Ratings also incorporate the prevailing challenges on account of circular debt crisis. The Company’s liquidity situation in terms of pending receivables seems stringent.
About
the Entity
Sindh Engro Coal Mining Company Limited is a public unlisted company, incorporated in Pakistan on October 15, 2009. The Company was formed under a Joint Venture Agreement between the Government of Sindh (GoS), Engro Energy Limited (EEL) and Engro Corporation Limited for the development, construction and operations of an open-cast lignite mine in Block-II of Thar Coal Field, Sindh. Currently, the Company’s ordinary shares, ~91.5% of the total equity, are owned by Government of Sindh (~54.70%), Engro Energy Limited, (~11.90%), Thal Limited (~11.90%), Habib Bank Limited (~9.50%), HUBCO (~8%), and CMEC Thar Mining Investments LTD (~4%). While preference shares, ~8.5% of the total equity, are owned by Huolinhe Open Pit Coal (HK) Investment Co. Ltd (100%). The board of SECMC, comprises of a total number of twelve directors (including the CEO), out of which five directors are nominated by the Government of Sindh and the remaining directors (including the CEO), are nominated by Engro and its affiliates.