PACRA Revises Outlook for Mughal Energy Limited Amid Financing and Operational Developments

Lahore: The Pakistan Credit Rating Agency Limited (PACRA) has updated its entity ratings for Mughal Energy Limited (MEL), maintaining the long-term rating at ‘A’ and the short-term rating at ‘A2’, while revising the outlook from ‘Stable’ to ‘Developing’. The change reflects the company’s ongoing efforts to secure financing and progress toward commissioning a new hybrid captive power plant.

According to Pakistan Credit Rating Agency Limited, MEL, a subsidiary of Mughal Iron & Steel Industries Limited (MISIL), is developing a 36.5 MW hybrid power plant designed to supply electricity to its parent company. The project, which involves an estimated cost of PKR 6.5 billion, is being financed through a 65:35 debt-to-equity ratio. The company has already obtained plant equipment and land, reducing procurement risks, and signed a long-term power purchase agreement with MISIL to mitigate off-take risk.

The construction, which began in October 2023, is expected to take around 14 months, although MEL has reported a slower-than-expected progress rate of 36.5% against a planned 46%. Civil works are nearing completion, and the installation phase is set to commence shortly. The plant is projected to be operational within 18 months, subject to the timely completion of remaining tasks.

MEL is in the process of securing PKR 2.5 billion through a Sukuk issuance for the remaining phases of the project. The sponsors have authorized corporate guarantees up to PKR 6 billion to facilitate this financing, with PKR 1.539 billion already issued as of September 30, 2024. The company’s ability to meet project milestones and achieve timely commissioning remains pivotal to maintaining its credit ratings.

Once operational, the plant is expected to lower electricity costs for MISIL by enabling in-house power generation, thereby enhancing production margins. The change in outlook to ‘Developing’ underscores the ongoing financial arrangements and project execution until the plant reaches its commercial operation date.

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