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Anam Waqas Ghayour

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PACRA Assigns Initial Entity Ratings to Huaneng Shandong Ruyi (Pakistan) Energy (Private) Limited

Rating Type Entity
(22-Jul-22 )
Action Initial
Long Term AA+
Short Term A1+
Outlook Stable
Rating Watch -

China Huaneng Group Company Limited - a state-owned Chinese Company, is the ultimate parent of Huaneng Shandong Ruyi (Pakistan) Energy (Private) Limited (“HSR” or “the Company”), which is Independent Power Producer (IPP) operating a 1,320MW coal based power plant located at Qadirabad, District Sahiwal. HSR is part of the China Pakistan Economic Corridor (CPEC). The financial strength and experience in the energy chain of the sponsoring group considered positive to the ratings. The rating took comfort from strong business profile, timely commissioning of the plant, achieved on 28th October, 2017 within the approved tariff limit and low demand risk on account of power purchase agreement (PPA) for a period of 30years (guaranteed 50% off take) with CPPA-G. Meanwhile, the Implementation Agreement provides sovereign guarantee, given adherence to agreed performance benchmarks (Availability: 85%, Efficiency: 39.75%). Operational Risk is concerned with the plants availability and efficiency as per the benchmarks agreed in the Energy Purchase Agreement (EPA). Shandong Huatai Electric Operations & Maintenance (Private) Limited is appointed as the O&M operator for the plant. The plant operates on imported coal which is sourced through China Huaneng Group Fuel Company Ltd under the Coal Supply Contract. During CY21 the plant generated net electrical output of 7,720GWh while maintaining its agreed benchmarks. Subsequently, the company reported Net Income of PKR~26,618mln for the year end Dec 2021. The company meets its working capital requirements through internally generated cash and short-term borrowings of PKR~30,912mln (Dec’21). However, the surge in outstanding receivables from CPPA-G amounting to PKR~ 100,361mln demands effective utilization of liquid resources. The company has successfully repaid 27% of its project debt (USD 1,411mln) obtained from Chinese lenders with the consortium led by Industrial and Commercial Bank of China (ICBC). The financial risk profile is subject to additional short-term borrowings undertaken by the company to finance its working capital requirements.
Going forward, upholding strong operational performance and adherence to financial parameters along with timely repayment of project debt remains crucial to sustain the assigned ratings.

About the Entity
Huaneng Shandong Ruyi (Pakistan) Energy (Private) Limited was incorporated in Pakistan on 28th May 2014. It is a wholly owned subsidiary of Huaneng Shandong Ruyi (Hong Kong) Energy Limited, a company incorporated in Hong Kong. The ultimate parent of the Company is China Huaneng Group Company Limited which is mainly engaged in the investment, development, construction, operations and management of power plants globally. The Board of Directors comprises of five members representing the sponsoring group having sufficient experience. The management team is led by Mr. Li Xin, appointed as CEO who has been associated with the company for five years. He is accompanied by a team of qualified and experienced individuals.

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.