The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Maintains the Rating of Engro PowerGen Thar (Private) Limited | PP Sukuk

Rating Type Debt Instrument
(28-Aug-23 )
(27-Aug-22 )
Action Maintain Upgrade
Long Term AA- AA-
Short Term - -
Outlook Stable Stable
Rating Watch - -

Engro Energy Limited (EEL) along with China Machinery & Engineering Corporation (CMEC) has set up first Thar coal based (2 x 330 MW) power plant (Complex) - Engro Powergen Thar(Pvt.) Limited (EPTL). Since its COD in July’19, EPTL is running its operations smoothly and sustainably and achieving operational benchmarks. The primary fuel is Thar Coal; however, the plant can accommodate imported coal. A 30-year coal supply agreement is signed with Sindh Engro Coal Mining Company (SECMC), which is operating a coal mine in Thar Block-II. The coalmine’s COD was July-19. The Company's both units were successfully connected to and are providing electricity to the grid. At the period ended Jun'23, EPTL sales revenue of PKR ~48,240mln along with Net Profit (N.P) of PKR 12,497mln (CY22: N.P ~PKR 16,262mln). The financial strength and experience in the energy chain of the sponsoring companies – EEL and CMEC – is positive to the ratings. EPTL has built its own financial strengths in a short span of time by adding to its equity base. The Company reported FCFO of PKR ~23,365mln as at end Jun’23. Going forward, the Company’s main focus would be to keep the plant operational. Power purchase agreement is with CPPA-G, which will, upon plant’s availability as per contract, provide capacity payments even if no off take by power purchaser. The Government of Pakistan has given payment guarantee against dues from CPPA-G.
The management’s ability to effectively manage EPC risks and COD provides comfort. Trend in operational profitability would bode well for rating. The availability of Thar Coal is critical. External factors such as any changes in the regulatory framework may impact the ratings.

About the Entity
EPTL, incorporated in September 2014, has set up a 2 x 330 MW Coal-based Power Plant under the 2002 Power Policy. The Company is a special purpose vehicle. It is the first indigenous coal based Power Plant of Pakistan in Thar Block – II, Sindh, for a total cost of USD 1.1bln, having a D/E ratio of 75:25. EPTL's majority ordinary shares are owned by Engro Energy Limited (EEL)(50.1%) and China Machinery Engineering Corporation (CMEC) (35%), while the remaining stake is owned by Habib Bank Limited (HBL) (9.5%) and Liberty Mills Limited (LML) (5.4%). Engro Energy Limited (EEL) is 100% owned subsidiary of Engro Corporation.

About the Instrument
EPTL issued a secured, & privately placed sukuk of the amount PKR 3bln in Aug'19. The instrument carried a profit rate of 3MK + 110bps with a tenor of five (5) years. The purpose of the Sukuk is to meet the Company's working capital requirement. The instrument has a call option attached to it which will enable the Company to redeem the Sukuk issue in part or whole. Currently, the principal of PKR 1,500mln and markup of PKR 1,416mln have been paid till Aug'23 by the Company.

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.