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The Pakistan Credit Rating Agency Limited
Press Release

Date
27-Jun-22

Analyst
Uswa Sikandar
uswa.sikandar@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Chanar Energy Limited

Rating Type Entity
Current
(27-Jun-22 )
Previous
(28-Jun-21 )
Action Maintain Maintain
Long Term BBB- BBB-
Short Term A3 A3
Outlook Negative Negative
Rating Watch Yes Yes

Chanar Energy Limited has a 22MW bagasse-based power plant which is adding renewable energy to the national grid. The IPP model is designed to create synergy and higher efficiency gains between IPP and sugar mill. Sustainable business profile of Chanar Energy emanates from the demand risk coverage under Energy Purchase Agreement signed with CPPA-G and ‘Bagasse supply and Steam Purchase Agreement’ with Chanar Sugar Mills Limited, a related entity. However, procurement of raw material, solely from the associated concern, Chanar Sugar Mills, poses constraints on generation capability and cash flow stream of the Company. The main risk factor affecting the stability of return is the availability of bagasse at a price higher than the assigned fuel component, by NEPRA. The ratings reflect company's average credit quality and liquidity profile. Plant availability during crushing season is reported at 36% (132 days), while during off season it remains unavailable. In comparison to the previous crushing season, the growth in the topline and profitability, emanating majorly from improved energy export is observed in the period under review. Company had a project debt of PKR 2,200mln repayable till Feb 2029 in 40 quarterly installments. Company till May22 has timely paid-off its debt obligations and has enough liquid funds available in form of cash and timely receipts of receivables from power purchaser to service installments due in next 6 months. Up till now, the due debt obligations are met through energy receivables and operational needs are financed by sponsors. The company does not rely on any short-term credit lines. The leverage is high in comparison to the equity base.
Rating Watch and negative outlook signifies the prevailing uncertainty pertinent to company’s financial muscles, and timely debt servicing. The ratings are dependent on Chanar Energy’s ability to sustain its business and financial profile; any deterioration in margins, leading to weak coverages and pressure on liquidity, will have a negative impact on ratings. Financial support from sponsors remains imperative in the long term.

About the Entity
Chanar Energy was incorporated in 2014 as an independent power producer. It is operating a bagasse-based power plant with gross capacity of 22MW. Chanar Energy's plant commenced operations in Feb 2019. The company is majorly owned by Mr. Javed Ahmad Kiyani and his family.
The four-member Board, comprising four members of Kiyani family provides adequate guidance to the company. Mr. Javed Ahmad Kiyani, the CEO of the company is supported by an able team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.