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VIS Maintains Strong Ratings for Liberty Daharki Power Limited Amidst Positive Business Developments

Karachi, VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Liberty Daharki Power Limited (formerly TNB Liberty Power Limited) (LDPL) at ‘A+/A-1’. The long-term rating of ‘A+’ reflects good credit quality with adequate protection factors, though subject to change with economic fluctuations. The short-term rating of 'A-1' indicates a high likelihood of timely payment, bolstered by excellent liquidity and fundamental protection factors. The ratings outlook is stable, consistent with the previous rating action announced on August 19, 2022.

According to VIS Credit Rating Company Limited, the ratings are supported by LDPL's low business risk profile, significantly underpinned by a 25-year power purchase agreement (PPA) with the Central Power Purchasing Agency (Guarantee) Limited (CPPA-G), featuring a 'take or pay' provision. This agreement, backed by a sovereign guarantee, mitigates off-take risk and ensures stability. LDPL's operational performance, aligned with agreed-upon levels, is a crucial factor in maintaining these ratings. The company's growing profitability is attributed to higher revenue from capacity and energy payments, including interest on late payments by the power purchaser. Additionally, LDPL has seen an increase in markup income from investments in government bonds and advances to an associated concern, further strengthening its financial position.

The company's PPA term, originally set to expire in September 2026, is expected to extend by a few years based on the PPA Amendment Agreement signed in CY21. This extension leaves approximately five years of commercial operations remaining for LDPL. With the project debt paid off and the corresponding tariff component in the Capacity Payment ceased, future debt servicing will rely on the company's profit generation. Post-PPA expiry, LDPL may undergo a shift in its business risk profile, but the management remains confident in continued power demand from its Complex, especially considering the expected low investment in power generation capacity over the next 5-10 years.

Despite external auditors' concerns involving going concern and emphasis of matter citations, the management believes adequate mitigations are in place. The company's liquidity risk is deemed manageable, thanks to intermittent payments by CPPA-G. LDPL has repaid a significant amount of interest on a long-term sponsor loan during CY22. Improved leverage indicators, resulting from lower total borrowings and a higher equity base at the end of HY23, also contribute to the positive rating outlook. Going forward, the resolution of the gas supply agreement, maintenance of optimal performance levels, and retirement of long-term borrowings by end-CY23 will be key factors influencing LDPL's ratings.

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