The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Assigns the Initial Rating to Lucky Electric Power Company Limited | PPSTS-5 | PKR 7bln | Oct-22

Rating Type Debt Instrument
(16-Dec-22 )
Action Initial
Long Term AA
Short Term A1+
Outlook Stable
Rating Watch -

Lucky Electric Power Company Limited ("LEPCL" or "the Company") has set up a 1x660MW (gross) coal-fired power plant. The project achieved COD in March-22 and is successfully connected to and providing electricity to the grid. The primary fuel is Coal; a coal supply agreement is signed with Sindh Engro Coal Mining Company (SECMC), SECMC will provide the coal from its developing Block-II (Phase III), which will be started in May-24. The previous tentative month was May-23. The Company has also signed imported coal supply agreement with reputable coal suppliers. Currently, plant is generating electricity through imported coal. Up till now, the Company has utilized 48% local and 53% imported coal. The Company has generated 1.8mln MWh since Mar'22. Comfort is drawn from the experience of O&M contractor - KEPCO. Going forward, the Company’s main focus would be to keep the plant operational. The Company has procured short-term financing facilities aggregating to PKR 46.5bln (including the debt instruments amounting to PKR 30bln) for operational needs. The financial strength and experience in the energy chain of the sponsoring company – Lucky Cement are considered to be positive for the ratings. Further, the sponsor has given explicit comfort to provide sufficient liquidity support. This is a key consideration in the assigned ratings. However, considering the unusual increase in working capital requirement due to the significant devaluation of PKR, supply chain issues and tariff adjustments LEPCL is striving to manage its need. The offtake agreement is with CPPA-G, which will, upon the plant’s availability as per the contract, provide capacity payments even if no purchase order is placed. The Government of Pakistan has given a payment guarantee against dues from CPPA-G.
The management’s ability along with the explicit support from the sponsor to effectively manage operational risks provides comfort to assigned ratings. The trend in operational profitability would bode well for rating. External factors such as any adverse changes in the regulatory framework may impact the rating.

About the Entity
LEPCL, incorporated in Pakistan on June 13, 2014 as public unlisted company at Port Qasim, Karachi, Sindh. Lucky Cement Limited owns 100% shareholding of LEPCL. Lucky Cement Limited stands as the flagship company of Yunus Brothers Group. The Company’s board comprises seven directors, including CEO, all the board members represent Lucky Cement. Mr. Muhammad Ali Tabba, the Chairman, has been associated with the Group in different capacities for nearly three decades and is currently chairing the Board with his visionary leadership and vast experience.

About the Instrument
LEPCL issued a rated, privately placed, unsecured, unlisted, short-term sukuk Lucky Electric Power Company Limited | PPSTS-5 | PKR 7bln | Oct-22 ("PPSTS-5") of PKR 7,000mln on 12-Oct-22. The tenor of the instrument is 6 months. The purpose of the instrument is to be utilized by the Company to meet its working capital requirements. The instrument carries a profit rate of 6MK+150bps. Profit and principal will be realized at a time of maturity. The instrument is in replacement of PPSTS-1 amounting to PKR 7bln which matured on 14-Oct-22.

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.