The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA maintains Entity Ratings of Sindh Engro Coal Mining Company.

Rating Type Entity
(19-Jul-23 )
(19-Jul-22 )
Action Maintain Maintain
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

Ratings reflect Sindh Engro Coal Mining Company’s (SECMC/the Company) ownership structure comprising of the Government of Sindh and financially sound business groups of the Country. In addition to ownership, Ratings also incorporates strategic importance of the project for sustainable energy solution of the Country. SECMC has leased Block-II (out of 12 blocks) of Thar, for the period of thirty (30) years, which has a cumulative capacity of ~1.57bln tonnes of coal which could be used to produce 5,000 MW for fifty (50) years. The Policy for Coal Tariff Determination offers a guaranteed internal rate of return, cost indexation and pass-through tariff structure for SECMC. Comfort is drawn from China Machinery Engineering Corporation (CMEC) – the O&M operator – having significant experience of International EPC projects in Power Plants. Business risk is considered low, exhibited by demand risk coverage as SECMC has signed a Coal Supply Agreements with companies, Engro Powergen Thar Limited (EPTL) for annual supply of 3.8 million tonnes of coal for Phase-I and with Thal Nova Power Thar (Private) Limited (TNPTL) and Thar Energy Limited (TEL) for annual supply of 1.9 million tonnes of coal to each for Phase II and with Lucky Electric Power for annual supply of 3.8 million tonnes of coal for Phase-III. After successful commissioning of Phase-I on 10th July 2019, the COD of Phase-II is achieved on September 30, 2022. Project Completion date (PCD) for Phase-I has been announced in May 2023. Phase-III is in pipeline and its financial close is expected in 4QCY23. SECMC has reported its topline of PKR 21.8bln during 1QCY23. The Company incurred net loss of PKR 3.7bln due to massive exchange loss of PKR 8.6bln. Since $ based indexation is allowed in tariff, this item is recoverable in due course. Strong liquidity and performance has enabled timely repayment of all the due loan repayments. While going forward, with the draw down for phase-III, leveraging is expected to rise. Though short-term borrowing has enhanced as compared to SPLY but strong cash position depicts good financial health of the Company.
Adherence to good financial discipline towards both financial and commercial obligations is considered a strength. Meanwhile, upholding strong operational performance in line with agreed performance levels remain important. Effective management of the project, favorable regulatory regime, and consistency in related policies remain critical for the ratings. The ratings incorporate the prevailing challenges on account of circular debt crisis. Company’s liquidity situation in terms of pending receivables seems stringent.

About the Entity
Sindh Engro Coal Mining Company Limited is a public unlisted company, incorporated in Pakistan on October 15, 2009. The Company was formed under a Joint Venture Agreement between the Government of Sindh (GoS), Engro Energy Limited (EEL) and Engro Corporation Limited for the development, construction and operations of an open-cast lignite mine in Block-II of Thar Coal Field, Sindh. The company’s ordinary shares, ~91.5% of the total equity, are owned by Government of Sindh (~54.70%), Engro Energy Limited, (~11.90%), Thal Limited (~11.90%), Habib Bank Limited (~9.50%), HUBCO (~8%), and CMEC Thar Mining Investments LTD (~4%). While preference shares, ~8.5% of the total equity, are owned by Huolinhe Open Pit Coal (HK) Investment Co. Ltd (100%). The board of SECMC, comprises of a total number of twelve directors (including the CEO), out of which five directors are nominated by the Government of Sindh and the remaining directors (including the CEO), are nominated by Engro and its affiliates.

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