The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA upgrades the Entity Ratings of Gul Ahmed Electric Limited

Rating Type Entity
(19-Feb-21 )
(20-Feb-20 )
Action Upgrade Initial
Long Term A- BBB-
Short Term A2 A3
Outlook Stable Stable
Rating Watch - -

The rating recognizes that Gul Ahmed Electric is now clearly heading towards achieving commercial and sustainable operations. Gul Ahmed Energy Limited is setting up 50 MW wind power plant - Gul Ahmed Electric Limited (GEL) located in Jhimpir, District Thatta, Sindh. GEL is awarded a cost plus tariff, with the payments to be received from CPPA-G backed by the sovereign guarantee. The project achieved financial close (FC) in November 2019. Its required commercial operation date as defined under EPA is fifteen months from construction start date i.e, October 2021. Gul Ahmed Electric has eliminated the risk of untimely injection of equity, as the entire equity has been arranged at the parent company level. This lends support to the project to achieve timely completion. The project has also taken significant strides towards completion and management is committed to achieve the milestone. Hydrochina International Engineering Company Limited & Hangzhou Huachen Electric Power Control Company are the EPC contractors, comfort is drawn that they have ~40 years of worldwide experience in the wind power technology. In case of delay in achieving the COD, the EPC contractors will be liable to pay the liquidated damages of $28,000 per day. The construction contractor will be the O&M operator for two years after COD; it will provide the warranty bond (10% of EPC cost) in the form of irrevocable bank guarantee for 24 months after COD this will provide additional cushion for the sustainable financial risk profile. Further, the company will maintain the Debt Service Reserve Account (DSRA), which will be backed by 6 months SBLCs, in total providing coverage of six months on its financial obligations till maturity. The project revenues and cash flows are exposed to wind risk, there is seasonal variation in the wind speed which effect the electricity generation, and ultimately cash flows may face seasonality. However, historical wind speeds provide comfort that GEL would be able to generate enough cash flows to keep its financial risk manageable. Comfort is drawn from the group association, having strong financial backing and relevant experience in successfully commissioning and operating 50MW Wind Energy Power Plant (Gul Ahmed Wind Power Limited) and running RFO based plant of 136 MW from last 23 years, which achieved COD in Nov-1997.
The Company has signed Energy Purchase Agreement ("EPA") with CPPA-G, as per the EPA, in case of non-project missed volumes the power purchaser shall be liable to pay the missed volumes calculated using tariff rates. The Company has adequate insurance coverage to cover the risk of business interruptions, marine & erection etc. Furthermore, external factors such as any adverse changes in the regulatory framework or prolonged delay in achieving COD may impact the ratings. Upholding financial discipline is also a consideration.

About the Entity
Gul Ahmed Electric Limited, incorporated in Dec 2015, is a Renewable Energy Independent Power Producer (RE IPP) operating under the Renewable Energy Policy 2006 by AEDB. The 50MW wind IPP is setting up in Jhimpir, District Thatta, Sindh. Mr. Iqbal Alimohamed is the CEO of the company. Mr. Iqbal has over fifty years of experience as an Industrialist/businessman. Mr. Iqbal is fellow member of ICAP and ICAEW. The total estimated cost of the project is USD 65.5mln. Debt financing constitutes 80% of the project cost i.e. USD 51mln, which is financed from foreign financial institutions and locally from SBP under re-financing scheme at fixed rate 6%. The project construction started in July 2020 with the COD expected in 15 months after that i.e. October 2021. Gul Ahmed Energy Ltd (GAEL) is the sponsor of GEL, already running RFO based plant of 136 MW from last 23 years. GAEL successfully running another wind project of 50MW - Gul Ahmed Wind Power Ltd.

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.