The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA maintains the entity ratings of Sindh Engro Coal Mining Company.

Rating Type Entity
(19-Jul-22 )
(19-Jul-21 )
Action Maintain Maintain
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect Sindh Engro coal mining company’s ownership structure-owned by the Government of Sindh and financially sound business groups of the country. The rating also incorporates the fact that indigenous coal is expected to play a dominant role in meeting the country's future energy requirement. SECMC has leased Block-II (out of 12 blocks) of Thar, for the period of thirty (30) years, which has a cumulative capacity of ~1.57bln tonnes of coal which could 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. Comfort is drawn from China Machinery Engineering Corporation (CMEC) – the O&M operator – having significant experience of International EPC Projects in Power Plants. Business risk is considered low, exhibited by demand risk coverage as SECMC has signed a Coal Supply Agreement with its associated company, Engro Powergen Thar Limited (EPTL), incorporated to operate mine-mouth coal-fired Power Plant (2x330MW) 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, having potential of soaring coal capacity to 7.6 TPA. The rating favorably factors in successful commissioning of 3.8mln TPA (Phase-I) mine on 10th July 2019, three months earlier than the Scheduled COD. The COD of Phase-II Expansion is expected to get completed by 1HFY2023, and expected to be aligned with the COD of TEL and TNPTL the coal purchaser from block II under Coal supply agreement. With the successful commissioning of Phase-I SECMC reported its topline to be PKR 39bln and is expected to upsurge further, when phase-II comes online. Consistent profitability and improved FCFOs support the timely repayment of phase-I project debt. While going forward, with the draw down for phase-II leveraging will increase. The Strong cash position and un-utilized short-term borrowing lines depicts healthy financial position of the company.
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 incorporate the prevailing challenges on account of circular debt crisis. 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. 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. Currently, there are five nominees from the Government of Sindh, two nominees from Engro, two nominees from Thal Limited and one nominee each from Habib Bank Limited, HUBCO and Huolinhe Investment. Mr. Imtiaz Ahmed Sheikh is the Chairman of the board and Mr. Amir Iqbal is the Chief Executive officer of the company having diversified experience. He is supported by the competent management team.

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