Analyst
Hashim Yazdani
hashim.yazdani@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Assigns Initial Ratings to Thar Energy Limited | PP Short Term Sukuk - PKR 5.0bln | Apr-24
Rating Type | Debt Instrument | |
Current (21-Jun-24 ) |
||
Action | Initial | |
Long Term | AA- | |
Short Term | A1 | |
Outlook | Stable | |
Rating Watch | - |
The Hub Power Company Limited (HUBCO) of Pakistan along with Fauji Fertilizer Company Limited (FFCL), has set up a 330MW, mine-mouth lignite-fired power plant at Thar Coal Block-II Sindh, under the umbrella of Thar Energy Limited (TEL). Both major shareholders collectively represent 90% shareholding, and have very strong presence, as also reflected by their Entity Ratings (AA+). The ratings depict the commissioning of the plant along with the fact that the plant is part of the China Pakistan Economic Corridor (CPEC) and is fueled by coal extracted from Thar Block-II by the Sindh Engro Coal Mining Company. Being on local coal the plant reduces dependence on imported fuels and resultantly positively affects the overall basket price of the electricity generated. The plant is prioritized in the merit order list by NTDC, which also translates into the assigned ratings. Additionally, the plant efficiency and utilization factor are high. Previously, the evacuation issue from the Thar Block, now stands resolved by NTDC, as a result the plant is supplying uninterrupted electricity to the National Grid, which further provides comfort. TEL has been awarded an upfront tariff, with the payments to be received from CPPA-G against Energy and Capacity, backed by the sovereign guarantee. The plant successfully achieved its Commercial Operations (COD) on 1st October 2022. As per the Power Purchase Agreement (PPA), CPPA-G has charged Liquidated Damages (LD) to the Company for the delay in COD from the required date. In accordance with the agreement, Hub Power Services Limited (HPSL) an associated company will provide Operations and Maintenance (O&M) services for the plant. The O&M contractor will be responsible for maintaining the operational benchmarks (Availability: 85%, Efficiency: 37%). Total electricity produced by the plant during 1HFY24 stood at 1,173GWh with a load factor of 88%. Additionally, the plant maintained its operational benchmarks of availability and efficiency. The plant is amongst the few plants placed at priority in the merit order list due to low cost of generation. Repayment against the project debt has started which will be completely repaid over a period of 10 years. The plant is expected to receive payments from CPPA-G on a priority basis considering its importance to the energy sector.
Going forward, the capacity of the Company to generate stable cash flows in order to make timely repayments against the project debt remains crucial. Further, with rising concerns about circular debt, the trend of payments received from CPPA-G against invoices and any, regulatory changes might impact ratings.
About
the Entity
Thar Energy Limited operates a 330MW coal IPP is situated in the energy park located in Block II of the Thar coalfields in Sindh. HUBCO holds 60%, Fauji Fertilizer has 30% and China Everbest Development has 10% ownership through CMEC (SPV) in TEL. Mr. Saleemullah Memon is the CEO of the Company.
About
the Instrument
TEL has issued an unsecured, privately placed short term sukuk of PKR 5bln on April 18, 2024 to finance the Company's working capital requirements. The Privately Placed Short Term Sukuk, having a tenor of six months, carries a profit rate of 6M KIBOR + 0.60%. The profit and principal will be paid in bullet at the time of maturity.