The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Upgrades the Entity Rating of Harappa Solar (Pvt.) Limited

Rating Type Entity
(15-Aug-23 )
(09-Sep-22 )
Action Upgrade Maintain
Long Term A+ A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Harappa Solar Private Limited an 18MWp Solar Power Plant – incorporated in September 2014, operates under the Renewable Energy Policy 2006. Rating upgrade takes into account smooth operational performance and relative positioning in the peer universe. Assigned ratings also take into account sound profile of sponsors having considerable experience in establishing green-field projects in power and industrial sectors and also operating a portfolio of solar projects. A long-term energy purchase agreement of 25 years with Power Purchaser, mitigating the underlying business and economical risk factors, along with sovereign guarantees on power purchaser’s payment obligation, also contribute positively towards the ratings. During FY23, Harappa Solar generated 16,776MW of electrical output while maintaining capacity and availability factor. The Company's operating performance improved, with the capacity factor rising to 19.5% (required: 17%). Due to the growth in net revenues (FY23: PKR787mln, FY22: PKR 581mln), gross and operating margins have returned to FY21 levels. The Company has availed both foreign and local loan to finance the debt. The Company has repaid ~55% of local loan and 49% of foreign loan by which leveraging comes down to 60%. The Company is required to maintain Debt Servicing Reserve Account (DSRA) equivalent to two debt repayments under financing documents, the Company is funding DSRA from SBLC.
Short-term borrowing stands at PKR 177mln to meet the working capital requirement. With a favourable liquidity profile and enough internal resources for working capital management, debt servicing remained satisfactory. Power Purchaser has been making payments on time so far; however, any future payment delays may result in some liquidity pressure. Capitalization metrics improved in FY23 due to an increase in the equity base. Based on predicted profitability and minor capex plans in the future, gearing and leverage levels will likely remain low.
Upgrading operational performance in line with agreed performance levels is important. Improvement in inflows and availability of unutilized credit limit remained congenial for the ratings.

About the Entity
Harappa Solar, incorporated in September 2014, is a Renewable Energy Independent Power Producer (RE IPP) operating under the Renewable Energy Policy 2006 by AEDB. The Company achieved financial close in February 2017 and Commercial Operations in October 2017. The total cost of the project is USD 24.4mln. Debt financing constitutes 75% of the project cost i.e. USD 18.3mln, which is financed from local and foreign financial institutions in ratio of 55:45. Other renewable projects belonging to the same sponsors are 50MWp Gharo Solar Limited and 8MWp Kathai-II Hydro Private Limited. Harappa Solar is primarily sponsored by Mr. Rana Nasim Ahmed with 75% shareholding, other significant shareholders are Mr. Khaqan Babar Cheema (12%) and Windforce (Pvt.) Ltd (12.8%). Mr. Khaqan Cheema is CEO and sponsor of Orient Cargo, a logistics Company, and Windforce is a renewable energy power generation Company from Sri Lanka. Harappa Solar’s Board of Directors (BoD) comprises eight members. Harappa Solar has been led by Chief Executive Officer – Rana Uzair Nasim, since its inception. He is assisted by a qualified management team with relevant industry experience.

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.