The Pakistan Credit Rating Agency Limited
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Saadat Mirza

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PACRA Assigns Initial Ratings to Chanar Energy Limited

Rating Type Entity
(28-Jan-20 )
Action Initial
Long Term BBB-
Short Term A3
Outlook Stable
Rating Watch -

Chanar Energy Limited has a 22MW baggase based power plant which is adding renewable energy to the national grid. The IPP model is designed to creating synergy and higher efficiency gains between IPP and sugar mill. The ratings reflect sustainable business profile of Chanar Energy emanating from the demand risk coverage under Power Purchase Agreement signed with CPPA-G and ‘Bagasse supply and Steam Purchase Agreement’ with Chanar Sugar Mills Limited, a related entity. Meanwhile, the Implementation Agreement provides sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. Certain covenants have to be met for utilizing Short-term borrowing lines from banks which are a source of liquidity in case of delay in payments from power purchaser.
Bagasse is to be procured from Chanar Sugar Mills Limited, for which payment is contingent on meeting all cash commitments as per agreed waterfall.
Chanar Energy has project debt of PKR 2,200mln repayable till Feb 2029 in quarterly installments. The total tenor of the project debt is twelve years including grace period which is earlier of two years or COD. The leverage is slightly higher than planned, which was incurred to achieve higher efficiency in steam production. This would augur well for the company over the future period.
Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important. Accumulation of pending receivables would pose threat to the company's ability to remain slovent. However, the management ably supported by sponsors remains crucial to enable timely settlement of debt repayments. Availability of requisite quantum of bagasse both during the targeted season days and off season days is pivotal to the operations of the company and hence ratings.

About the Entity
Chanar Energy was established in 2014 under the repealed Companies Ordinance 1984 as an independent power producer. The company is operating a baggase based power plant with a Gross capacity of 22MW. Chanar Energy's plant commenced operations in Feb 2019. Chanar Energy is majority 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 is the CEO of the company. He 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.