The Pakistan Credit Rating Agency Limited
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Mubasher Bhatti

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PACRA Maintains Entity Ratings of Foundation Power Company Daharki Limited

Rating Type Entity
(02-Oct-19 )
(30-Apr-19 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect strong business profile of Foundation Power Company Daharki Limited (Foundation Power) emanating from the demand risk coverage under Power Purchase Agreement signed between NTDC (through Central Power Purchasing Agency) and the company. Meanwhile, the Implementation Agreement provides sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. The ratings incorporate low operational risk, a result of the performance of KEPCO - the O&M operator. Fuel of the plant is 'low BTU' gas, which is supplied by an associate - Mari Petroleum Company Limited (40% owned by Fauji Foundation). Thus, fuel supply risk is considered low. Although there are delays in payments from power purchaser, the company manages the impact by aligning the payments to fuel supplier with its receipts. This keeps working capital needs under check. Short-term borrowing lines are available and available cushion therein is significant at end-June19, which provides comfort. Foundation Power has total long-term debt of PKR 2,930mln as at end-June19 payable till June 2020. Moreover, Foundation Power has been repaying its debt repayments (Principal and Markup) on time without availing benefit of forbearance period. The company's association with Fauji Foundation (FF) provides comfort to the ratings.
Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important. Accumulation of circular debt would pose threat to the company's ability to continue with this practice. However, the management ably supported by sponsors remains committed to sustain improvement in management of commercial obligations and timely debt repayments.

About the Entity
Foundation Power was established in 2005 under the Companies Ordinance 1984 as an independent power producer. The company is operating a combined cycle power plant with a net initial capacity of 180MW. Foundation Power's plant commenced operations in May 2011. Foundation Power is majority owned by Daharki Power Holdings Limited, which, in turn is owned by FF (81%) and Asian Development Bank (ADB) (19%).

The six-member Board, comprising five representatives from Fauji Foundation and one from Asian Development Bank (presently awaiting nomination for designate as a replacement to previous nominee director) provides adequate guidance to the company. Lt Gen Syed Tariq Nadeem Gilani (Retd) Managing Director of Fauji Foundation chairs the board. Maj Gen Asghar Nawaz, HI(M) (Retd), Managing Director of Foundation Power replaced Lt. Gen. Jamil Haider (Retd) during 2018. He is supported by an experienced senior management 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.