The Pakistan Credit Rating Agency Limited
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Muhammad Mubashir Nazir

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PACRA Maintains Entity Ratings of Sapphire Electric Company Limited

Rating Type Entity
(25-Feb-22 )
(26-Feb-21 )
Action Maintain Maintain
Long Term AA- AA-
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect the strong business profile of Sapphire Electric Company Limited (“Sapphire Electric” or “The Company”) emanating from the demand risk coverage under the Power Purchase Agreement signed between CPPA-G (Central Power Purchasing Agency) and the Company. Meanwhile, the Implementation Agreement provides a sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. Nevertheless, delayed payments from the power purchaser remained a challenge. The ratings incorporate low operational risk, a result of the performance of General Electric - the O&M operator. The primary fuel of the plant is Regasified Liquefied Natural Gas (RLNG) which is supplied by Sui Northern Gas Pipeline Limited (SNGPL). Thus fuel supply risk is considered adequate, pertaining to the meaningful addition of RLNG in Pakistan’s fuel mix. During the period, 6MFY22 & FY21, Sapphire Electric provided ~437GWh, & ~568GWh of electricity to the national grid and recorded sales revenue of PKR ~10,279mln & PKR ~12,184mln along with a Net Profit of PKR ~1,138mln & PKR ~2,528mln respectively. Delayed payments from the power purchaser pose pressure on the Company’s working capital requirements, because of the mounting receivables, in order to carter the issue the Company has arranged amicable working capital lines out of which 63% had been utilized as of FY21. The Company has received its first installment on Jan 21 (40% of outstanding receivables in form of 1/3rd cash, 1/3rd PIB and 1/3rd Sukuk’s) under the agreement signed with CPPA-G, this will improve the liquidity, rest 60% will be received after 6 months of the first installment. Pursuant to this agreement the Company has revised its ROE in respect of local equity (80%) to 17% from 15% with no dollar indexation, and for foreign equity (20%) to 12% from 15% with dollar indexation. Sapphire Electric project-related debt has been completely paid off in Sep’20. The Company has also made an investment (100%) in Sapphire Hydro Limited, a Hydro Power project of 150MW in Sharmai Khyber Pakhtunkhawa.
Upholding operational performance in line with agreed performance levels would remain a key rating driver. The Company's association with Sapphire Group provides comfort to the ratings. Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important

About the Entity
Sapphire Electric was established in 2005 as an independent power producer (IPP), with a gross capacity of 225MW, is operating under the Power Policy 2002. It began commercial operations in October 2010. Sapphire Electric is a subsidiary of Sapphire Fibres Limited. Sapphire Group owns (70%) stake in Sapphire Electric mainly through Sapphire Fibres Limited (70%), while the remaining stake is owned by Xenel Saudi Arabia (20%), Meezan Bank (5%), and a few high net worth individuals (5%). Sapphire Electric's project cost comprised 25% equity and 75% debt. The seven-member Board of Directors (BoD), including the CEO, is majorly composed of representatives from Sapphire Group, while Xenel is represented by one member. The board has played an active role in providing strategic guidance to Sapphire Electric and has been responsible for making key decisions. Mr. Shahid Abdullah, the CEO, also heads the parent company Sapphire Fibres Limited. He is supported by a professional 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.