The Pakistan Credit Rating Agency Limited
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Uswa Sikandar

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PACRA Maintains Entity Ratings of Chanar Energy Limited

Rating Type Entity
(22-Nov-22 )
(27-Jun-22 )
Action Maintain Maintain
Long Term BBB- BBB-
Short Term A3 A3
Outlook Stable 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 last crushing season was reported at 36% (132 days), while during off season it remains unavailable. Outlook has been changed to “Stable” due to growth in the topline and profitability, emanating majorly from improved energy export as well as repayments of the company’s debt obligations till Nov22. Further confidence is drawn from availability of enough liquid funds due to timely recoveries from power purchaser to service upcoming debt installments. The company does not rely on any short-term credit lines. Company had a project debt of PKR 2,200mln repayable till Feb 2029 in 40 quarterly installments. Up till now, the due debt obligations are met through energy receivables. The company has recently started getting O&M cost from consortium on monthly basis after approval of all members FIs. The leverage is high in comparison to the equity base.
Rating Watch 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 Kayani and his family.
The four-member Board, comprising four members of Kayani family provides adequate guidance to the company. Mr. Javed Ahmad Kayani, 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.