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The Pakistan Credit Rating Agency Limited
Press Release

Date
26-Mar-20

Analyst
Shahmeer Dar
shahmeer.dar@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Entity Ratings of Kohinoor Energy Limited

Rating Type Entity
Current
(26-Mar-20 )
Previous
(27-Sep-19 )
Action Maintain Maintain
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings of Kohinoor Energy Limited (Kohinoor Energy) reflect its stable business profile emanating from a secured regulatory structure. This entails sovereign guaranteed revenues and cash flows, given adherence to agreed performance benchmarks. Kohinoor Energy continues to meet its availability (86.07%) and efficiency (43.5%) benchmarks - an outcome of technically sound O&M team, robust systems and controls, and strong governance structure. Nevertheless, delayed payments from the power purchaser remained a challenge. Business risk is considered low exhibited by demand risk coverage under the Power Purchase Agreement signed between WAPDA and the company. Current borrowings mainly short-term reflects the need to meet the working capital requirements and maintenance projects. Short-term borrowing lines are available and mainly used to fund any shortfall in working capital requirement. Total short term line available to KEL is PKR 8.6bln, out of which PKR 6.5bln has been used and there is ~24% cushion available in short term lines. Given the liquidity situation, utilization is imputed to go up further. Settlement of overdue receivables is crucial. Meanwhile, the coverages of the company has also dropped due to increased usage of short term borrowings and its financial profile is highly dependent on the timely repayment of the receivables. The Company has been paying dividends which in times of need is an internal source of liquidity available. The ratings continue to take comfort from Kohinoor Energy's association with good business groups - Toyota Tsusho Corporation and Saigol Group.
Although well-managed, in-house O&M activities expose the company to operational risk; thus upholding strong operational performance in line with agreed performance levels would remain a key driver of the ratings. Meanwhile, any further significant accumulation in receivables, thereby impacting the financial profile of the company may have negative effects. However, the Govt. is planning to issue a SUKUK of ~PKR 200bln which would help in decreasing the receivables of the company.

About the Entity
Kohinoor Energy Limited, an independent power producer (IPP) – commissioned its plant under Power Policy 1994. With a total cost of US$ 138.8mln and capacity of ~131MW (Dependable capacity of 124MW), the company started its Commercial Operations in June 1997. Kohinoor Energy is listed on Pakistan Stock Exchange. The principal sponsors of the company are Toyota Tsusho Corporation (TTC) (36%), followed by the Saigol Group (26%). The remaining shareholding (~38%) is widely dispersed.

BoD comprises of seven members including the Chief Executive Officer. The board members are professionals with experience in managing the business affairs of companies in different sectors. The board includes four representatives of TTC, two representatives of the Saigol group and one representative of Wartsila Pakistan.

The chairman, Mr. Naseem Saigol is a renowned businessman. He also chairs the Board of Pak-Elektron Limited, an established appliances company. The board has been actively involved in providing strategic guidance to the company and implementing strong internal control framework.

Mr. S.M Shakeel, CEO - Kohinoor Energy Limited, has a long association with Kohinoor Energy and previously worked as Chief Operating Officer. Mr. Shakeel is a Chartered Accountant by profession and assisted by a team of qualified individuals with significant experience in the energy business.

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.