Press Release

VIS Assigns Initial Entity Ratings to Engro Powergen Qadirpur Limited

Karachi, April 23, 2019: VIS Credit Rating Company Limited (VIS) (formerly JCR-VIS Credit Rating Co. Ltd.) has assigned initial entity ratings of ‘AA-/A-1’ (Double A Minus/A-One) to Engro Powergen Qadirpur Limited (EPQL). The long term rating of ‘AA-’ signifies high credit quality; protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. The short term rating of ‘A-1’ signifies high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’.

EPQL has been operating a 217.3 MW gas based thermal combined cycle power plant near Qadirpur, District Ghotki, Sindh since 2010. Engro Energy Limited (EEL), a subsidiary of Engro Corporation Limited (Engro), has majority shareholding in the company with 69% ownership while remaining stake is held by general public. EPQL has outsourced its operations & maintenance (O&M) services to Engro Energy Services Limited (EESL). The assigned ratings draw comfort from significant experience of EEL/Engro in executing similar projects. Moreover, ratings incorporate sound operational track record of the O&M contractor, EESL.

Assessment of business risk profile incorporates low off-take risk due to take or pay tariff awarded whereby EPQL will be eligible for guaranteed capacity payments. Fuel Supply and Price Risks are limited due to long-term supply contract and cost pass through mechanism built in the tariff. Performance of the plant has remained compliant with normative parameters as laid down in the power purchase agreement (PPA). As projected in the implementation agreement, EPQL is now facing gas curtailment from Qadirpur gas field as it is depleting and has made its plant available on mixed mode i.e. comingling of gas and high speed diesel from September 7, 2018 onwards. Terms of the contract also allow conversion to alternate fuel; profitability and cash flows will not be impacted given that fuel cost component and conversion cost are pass-through.

Financial risk profile draws support from strong guaranteed cash flows and satisfactory debt servicing ability. Cash flows are adequate for servicing outstanding debt obligations. However, persistence of circular debt may translate into some liquidity pressures. Leverage indicators stand within manageable limits. By end-2020, gearing levels are expected to decline with complete repayment of long term debt and increase in equity base. Going forward, improvement in liquidity profile with respect to circular debt and satisfactory plant operation post conversion to alternate fuel will be key rating sensitivities.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 201) at 021-35311861-71 or fax to 021-35311872-3.

Javed Callea
Applicable Rating Criteria: Industrial Corporates (May 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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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