Press Release

JCR-VIS upgrades rating of outstanding PPTFC of Sindh Nooriabad Power Company Phase-II (Pvt.) Limited. Rating of ‘A+’ assigned to proposed Sukuk issue of Rs. 3billion

Karachi, November 15, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has upgraded rating of outstanding Privately Placed Term Finance Certificates (PPTFCs) to A (Single A) from A- (Single A Minus). A preliminary rating of A+ (Single A Plus) has also been assigned to the proposed Rs. 3billion Sukuk of Sindh Nooriabad Power Company Phase-II (Pvt.) Limited (SNPC-2). The preliminary rating will be converted to a final rating upon review of signed legal documents. The ratings signify good credit quality and adequate protection factors; risk factors may vary with possible changes in the economy. Outlook on the PPTFCs and preliminary Sukuk rating is ‘Stable’. The previous rating action was announced on October 14, 2016.

The assigned ratings incorporate the support of Government of Sindh (GoS) as one of the key stakeholder in the institution under the Public-Private Partnership scheme with Technomen Kinetics (Pvt.) Limited. Besides being a key shareholder, GoS through the ‘GoS employee pension fund’ has also provided a sizeable portion of the outstanding debt in addition to security for the purpose of securing funding. Both sponsors have demonstrated support in the form of additional equity injection and sub-ordinated loans.

Assigned ratings reflect low business risk profile of the Company as evident from limited off-take risk, satisfactory operating track record since commercial operations and adequate coverage for losses in operations and maintenance (O&M) contract in case stipulated parameters are not met. Moreover, fuel supply and price risk is limited due to long-term supply contract and cost pass through mechanism built in the tariff. Financial profile is supported by adequate cash flows, working capital cycle and debt servicing ability. Limited exposure to circular debt (with timely repayments by K-Electric Limited) also supports assessment of liquidity profile. Given the funding mix, leverage indicators are currently high but are projected to decline gradually with debt repayments and increase in equity base.

SNPC-2 is in the process of issuing a Sukuk of Rs. 3billion. The Sukuk will be for a tenor of 10 years inclusive of a grace period of one year and will have quarterly repayments. The assigned rating to the Sukuk incorporates structural features of the instrument including entrapment of cash in debt servicing account. Funds from the Sukuk will be utilized for reprofiling existing debt which will extend and stagger long-term debt repayments over a longer time horizon. Given the business risk profile and cash generated from operations, overall debt servicing ability is expected to remain strong over the rating horizon (as allowed by NEPRA in the tariff determination).

SNPC-2 is a Public Private Partnership between the GoS and Technomen Kinetics (Pvt.) Limited (TKL) for a 50 MW (CIRCA) gas based power generation project at Nooriabad, Sindh under the provision in National Policy for Power Generation Projects, 2002 for small power projects by provinces. The project is majority owned by TKL having 51% equity stake while the remaining shares are held by the GoS. SNPC-2 started commercial operations in January’2018 and sells power to K-Electric Limited. Dedicated Transmission lines for the project from Nooriabad to KDA-33 Grid Station of KE have been laid down by Sindh Transmission and Dispatch Company under a wheeling arrangement.

For further information on this rating announcement, please contact Mr. Talha Iqbal (Ext: 213) or the undersigned (Ext. 201) at 021-35311861-70 or Mr. Javed Callea (Ext. 234) at 021-35311861-70.

Javed Callea

Applicable Rating Criteria: Industrial Corporates (May 2016)
Notching The Issues (June 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2018 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited