The Pakistan Credit Rating Agency Limited
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Hashim Yazdani

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PACRA Assigns Initial Entity Ratings to Mughal Energy Limited

Rating Type Entity
(01-Dec-22 )
Action Initial
Long Term A
Short Term A2
Outlook Stable
Rating Watch -

Mughal Energy Limited (MEL) or the Company is an associated company of Mughal Iron & Steel Industries Limited (MISIL). The Company is in the process of installing a 36.5MW coal captive power plant that will supply electricity to MISIL under the Bulk Purchase Agreement that is yet to be finalized. The company has been granted a generation license by NEPRA of 30 years starting from the Commercial Operation Date (COD). The total estimated cost of the project is PKR 6.5bln which will be financed through expected debt to equity mix of 60:40. The debt financing will be utilized towards installation and testing of the plant for commercial operations. The company has already procured the plant and land for plant site through equity injected by the sponsors, thus mitigating the procurement risk. The plant equipment is already at the site, providing further comfort. The plant is expected to be commissioned with-in 15 months from the construction start date, which is expected to start in few days. Further, the off take risk will be addressed with finalization of long term power purchase agreement with MISIL. MISIL has approved issuance of corporate guarantee of PKR 6bln in favor of banks on behalf of MEL for the purpose of availing financing for a period of 5 years. The Company has assigned local contractors for the installation and testing of the plant at the site which will take approximately 14 months. Local EPC insulates against risk of foreign EPC's travel risk.
The assigned rating captures the groups strength and business acumen. Going forward, timely completion of the project and successful commissioning of the plant remains crucial to uphold the assigned ratings. The finalization of Bulk Purchase Agreement, Coal Supply Agreement and Operations & Maintenance Agreement would provide further comfort towards the assigned ratings.

About the Entity
Mughal Energy Limited (MEL) or “the Company” was incorporated as a Public Limited Company in Pakistan on 19th August, 2012. The principal purpose of the company is to carry on business of generating electricity. The shares of the Company are held by individuals belonging to the sponsoring Mughal Group including Mr. Jamshed Iqbal (33.33%) while Mr. Khurram Javed, Mr. Fahad Javaid, Mr. Fazeel bin Tariq and Mr. Waleed bin Tariq all hold approximately 17% each. Mr. Mirza Javed Iqbal is the Chairman of the board and holds diversified experience in the iron and steel industry. Mr. Khurram Javed is the CEO of the Company and has been involved in the family 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.