The Pakistan Credit Rating Agency Limited
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Uswa Sikandar

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PACRA Upgrades Entity Ratings of Liberty Wind Power 1 Limited

Rating Type Entity
(01-Mar-23 )
(04-Mar-22 )
Action Upgrade Maintain
Long Term A A-
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

Liberty Mills Limited has set up a 50MW wind power plant “Liberty Wind Power 1 Limited” (LWP1) in Jhimpir, District Thatta, Sindh. LWP1 is awarded a cost plus tariff, with the payments to be received from power purchaser backed by the sovereign guarantee. The plant successfully achieved its Commercial Operations (COD) on April 9th, 2022 and has been supplying electricity to the national grid since then. The Company operates in the regulated power sector. Comfort is drawn from entity’s group association, having strong financial backing. Hydrochina International Engineering Company Limited & Hangzhou Huachen Electric Power Control Company were the EPC contractors for the project and shall also remain its O&M operators for the first two years after COD. The O&M contractor will be responsible for maintaining the operational benchmarks (Availability: 97%, Capacity: 38%) and shall provide the warranty bond (10% of EPC cost) in the form of irrevocable bank guarantee for 24 months after COD. This will provide additional cushion for the sustainable financial risk profile. Further, the company will maintain the Debt Service Reserve Account (DSRA), which will be backed by 6 months SBLCs, in total providing coverage of six months on its financial obligations till maturity. Foreign and local components of loan have a maturity of 13 and 10 years respectively with quarterly repayments started from Sep, 22. The project revenues and cash flows remain exposed to wind risk due to seasonal variation in the wind speed which may affect electricity generation, and ultimately cash flows may face seasonality. However, historical wind speeds provide comfort that LWP1 would be able to generate enough cash flows to keep its financial risk manageable. FCFO’s for June’22 stood at PKR 596 million while total receivables were recorded at PKR 650 million which is mainly representing unbilled billing to the Power Purchaser. The company has generated 137 million units of electricity till Jan’23 after achieving COD. The company is in the process of applying for adjustment / true up in its original tariff and may have to rely on additional financing to service its debt if payments from power purchaser are not recovered on time. However, Power Purchaser has been releasing the due receivable during the month in which respective invoice becomes due and the management expects same trend in future as well.
As per the Energy Purchase Agreement ("EPA") signed with the power purchaser, in case of non-project missed volumes the power purchaser shall be liable to pay the missed volumes calculated using tariff rates. The Company has adequate insurance coverage to cover the risk of business interruptions, marine & erection etc. Furthermore, external factors such as any adverse changes in the regulatory framework may impact the ratings. Going forward, the capacity of the Company to generate stable cash flows in order to make timely repayments against the project debt remains crucial.

About the Entity
LWP1, incorporated in April 15, is a Renewable Energy Independent Power Producer operating under the Renewable Energy Policy 2006 by AEDB. The 50MW wind IPP is set up in Jhimpir, District Thatta, Sindh. The company is wholly owned by Liberty Group. The total estimated cost of the project is USD 63.90mln. Debt financing constitutes 80% of the project cost i.e. USD 51.12mln, which is financed from foreign and local financial institutions at 3MLIBOR plus 4.25% and under SBP re-financing scheme at 3% plus 1.5% respectively. LWP1 Ltd has 3-member board with all members belonging to the Liberty Group. Mr. Azam Sakrani is the CEO of the company. Management team comprises qualified professionals with sufficient 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.