PACRA Updates Entity Ratings of Mughal Energy Limited | Developing Outlook

Mughal Energy Limited ("MEL" or "the Company") is a subsidiary of Mughal Iron & Steel Industries Limited (MISIL). The Company is in the process of installing a 36.5 MW hybrid captive power plant can operate on Mix of indigenous and imported Coal, and Bark, primarily intended to supply electricity to MISIL. MEL has been granted a 30-year generation license by the National Electric Power Regulatory Authority (NEPRA), effective from the Commercial Operation Date (COD). The project's total estimated cost is approx. PKR 6.5bln, with financing planned through a 65:35 debt-to-equity ratio. The Company has already secured the plant equipment and land for the site using equity contributions from the sponsors, effectively reducing procurement risks. Debt financing is designated for the installation and testing of the plant for commercial operations. Off-take risk is mitigated by a long-term power purchase agreement already signed with MISIL. The Company has engaged local contractors for civil work, installation, fabrication, and testing at the site, with an estimated timeline of 14 months for completion. The plant is expected to be commissioned within 18 months from the construction start that was October 2023. However, this timeline may extend, given the current progress report indicating that MEL has achieved 36.5% progress compared to the planned 46%. Local EPC insulates against risk of foreign EPC's travel risk. As of November 2024, the civil work is nearing completion, and installation is expected to begin soon. The Company is currently in the process of securing the remaining funds through a long-term Sukuk issuance of PKR 2.5bln. Once operational, the MEL plant will enable MISIL to leverage in-house power generation, resulting in reduced electricity costs. Consequently, this will enhance margins by lowering overall production costs—a critical advantage for MISIL. The “Developing Outlook” reflecting the ongoing process of securing the required financing and highlights the period until the plant's commissioning. The sponsor has approved corporate guarantees with a limit of PKR 6bln in favor of MEL to secure financing for a five-year period. As of September 30, 2024, MISIL has issued guarantees amounting to PKR 1.539bln under this approved limit.
The ratings are contingent upon the management's ability to meet completion milestones. However, the assigned ratings take into account the strength and business acumen of the group. Going forward, the timely achievement of the COD, as per the expected milestones, remains crucial to uphold the assigned ratings.

About the Entity
MEL was incorporated as a public unlisted company in Pakistan on August 19, 2012. In November 2023, MEL was acquired by MISIL and became a wholly owned subsidiary. Subsequently, on June 13, 2024, MEL was listed on the Growth Enterprise Market (GEM) Board of the Pakistan Stock Exchange Limited (PSX), with a free float share of 10%. The Board is chaired by Mr. Mirza Javed Iqbal, who brings over four decades of experience in the steel and iron industry. The CEO, Mr. Khurram Javed, has been actively involved in the family business and supported by a team of experienced professionals with the necessary technical expertise and industry knowledge.