Karachi, November 20, 2014 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Nishat Chunian Power Limited (NCPL) at ‘A+/A-2’ (Single A Plus/A-Two). Outlook on the medium to long-term rating is ‘Stable’. The previous rating action was announced on September 25, 2013.
NCPL is an Independent Power Plant (IPP) having gross capacity of 200MW and a 25 year Power Purchase Agreement (PPA) with National Transmission and Dispatch Company Limited (NTDCL). Government of Pakistan’s (GoP) guarantee on NTDCL payments to the company is a key rating factor.
A sizable gap between billing and recovery of electricity has led to accumulation of inter-corporate debt in the power sector. Meanwhile, cost of generation in Pakistan has remained high owing to an expensive fuel mix with oil and gas contributing 64% of the total electricity generated and high transmission and distribution losses. As a short-term solution, GoP’s bailout package on reducing inter-corporate debt around the end of Jun’13, boded well for the power sector.
This also had a positive impact on NCPL as trade debts declined considerably that were impeding the company from procuring fuel. Resultantly, capacity utilization improved during FY14. Trade debts have however increased again by end-FY14. NCPL has been utilizing short term credit lines to support its working capital requirements with the level of utilization being contingent on payments from NTDCL. Recovery of outstanding dues is considered essential to ease the pressure on liquidity. NCPL employs a high dividend payout ratio, which has been increasing on a timeline basis.
Given the stress on cash flows resulting from the accumulation of receivables, the company may need to revisit its dividend policy.An operations and maintenance (O and M) agreement exists between NCPL and Wartsila Pakistan (Pvt.) Limited; as per its terms, the O and M agreement is expected to mature shortly. Subsequently, the company plans to carryout O and M in-house to save related costs. As per management, the company possesses required level of in-house skill set to ensure smooth plant operations. Ability to do so will be tested over time.
For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA at 021-35311861-70 or Mr. Maimoon Rasheed at 042-36610681-84.
For more information, contact:
Ms. Sobia Maqbool
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
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