PACRA Assigns Initial Entity Ratings to Master Green Energy Limited

Lahore, January 15, 2020 (PPI-OT): Master Group, pioneers of foam products, is setting up its second 50MW wind power plant – Master Green Energy Limited. The ratings incorporate the Group’s previous experience in successfully commissioning and operating a 52.8MW Wind Energy Power Plant (Master Wind Energy Limited). Master Green is awarded a cost plus tariff, with the payments to be received from CPPA-G backed by the sovereign guarantee. Currently, project is exposed to completion risk because construction work is at initial stage; Hydrochina International Engineering Company Limited and Hangzhou Huachen Electric Power Control Company are the EPC contractors, comfort is drawn that they have ~40 years of worldwide experience in the wind power technology.

In case of delay in achieving the COD, the EPC contractors will be liable to pay the liquidated damages of $ 29,000 per day backed by irrevocable bank guarantee of 15% of EPC cost. The construction contractor will be the O and M operator for two years after COD; it will provide the warranty bond (10% of EPC cost) in the form of irrevocable bank guarantee for 24 months after COD. These bank guarantees provide additional cushion for the sustainable financial risk profile.

Further, the company will maintain the Payment Service Reserve Account (PSRA), which will be filled by 6 months SBLCs and 3 months cash flows, in total providing coverage of nine months on its financial obligations till maturity. Further, the project revenues and cash flows are exposed to wind risk, there is seasonal variation in the wind speed which effect the electricity generation, ultimately cash flows may face seasonality. However, historical wind speeds provide comfort that Master Green would be able to generate enough cash flows to keep its financial risk manageable.

The Company has signed Energy Purchase Agreement (“EPA”) with CPPA-G, as per the EPA, in case of non project missed volumes the power purchaser shall be liable to pay the missed volumes at applicable tariff rates. The Government of Pakistan has given payment guarantee against dues from CPPA-G. The Company has adequate insurance coverage to cover the risk of business interruptions, marine and erection etc. Furthermore, external factors such as any adverse changes in the regulatory framework or prolonged delay in achieving COD may impact the ratings. Upholding financial discipline is also a consideration.

For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com