PACRA Assigns Initial Ratings to Chanar Energy Limited

Lahore, January 28, 2020 (PPI-OT): Chanar Energy Limited has a 22MW bagasse based power plant which is adding renewable energy to the national grid. The IPP model is designed to creating synergy and higher efficiency gains between IPP and sugar mill. The ratings reflect sustainable business profile of Chanar Energy emanating from the demand risk coverage under Power Purchase Agreement signed with CPPA-G and ‘Bagasse supply and Steam Purchase Agreement’ with Chanar Sugar Mills Limited, a related entity. Meanwhile, the Implementation Agreement provides sovereign guarantee for cash flows, given adherence to agreed performance benchmarks. Certain covenants have to be met for utilizing Short-term borrowing lines from banks which are a source of liquidity in case of delay in payments from power purchaser.

Bagasse is to be procured from Chanar Sugar Mills Limited, for which payment is contingent on meeting all cash commitments as per agreed waterfall. Chanar Energy has project debt of PKR 2,200mln repayable till Feb 2029 in quarterly instalments. The total tenor of the project debt is twelve years including grace period which is earlier of two years or COD. The leverage is slightly higher than planned, which was incurred to achieve higher efficiency in steam production. This would augur well for the company over the future period.

Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important. Accumulation of pending receivables would pose threat to the company’s ability to remain solvent. However, the management ably supported by sponsors remains crucial to enable timely settlement of debt repayments. Availability of requisite quantum of bagasse both during the targeted season days and off season days is pivotal to the operations of the company and hence ratings.

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