VIS Reaffirms Ratings of Quaid-e-Azam Thermal Power (Private) Limited

Karachi, July 04, 2019 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Quaid-e-Azam Thermal Power (Private) Limited (QATPL) at ‘AA/A-1+’ (Double A/A-One Plus). The medium to long-term rating of ‘AA’ denotes high credit quality coupled with strong protection factors. Moreover, risk factors may vary slightly with possible changes in the economy. The short-term rating of ‘A-1+’ denotes highest certainty of timely payment, liquidity factors are outstanding and safety is just below risk free short-term obligations of Government of Pakistan. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on July 04, 2018.

QATPL is wholly owned by the Government of Punjab (GoPb). The company owns and operates re-liquefied Natural Gas (RLNG) based Combined Cycle Gas Turbine (CCGT) power plant of 1,183 MW generating capacity at Bhikki, District Sheikhupura – Punjab. The ratings draw comfort from the presence of a clause in the Power Purchase Agreement (PPA) whereby QATPL will continue to receive capacity payments during the period of non-supply of gas.

In addition, the “Suspension” clause in the PPA allows the company to suspend its plant operations if the receivable amount from Central Power Purchase Agency (Guarantee) Limited (CPPA) at any point in time remains outstanding for 60 days or more, while QATPL will continue to receive capacity payments during the suspension period. This provision further protects the company from the circular debt risk.

The ratings also factor in positive earnings trajectory due to a combination of higher sales, strengthening of profit margins and improved liquidity position on the back of higher cash flows generation. Ratings also take into account the various financial covenants required to be maintained including Debt Service Coverage Ratio, Loan Life Coverage Ratio and Current Ratio. Revenues of the company are expected to sustain owing to a tariff based on fixed return on equity. While leverage indicators have weakened primarily with the mobilization of long-term borrowings, the company’s debt service coverage has become adequate on the back of improved cash flows from operations.

The company has no plan to mobilize additional long-term borrowings while utilization of short-term borrowings may fluctuate with change in working capital requirements. The management believes that continuous retention of profits and scheduled repayments of long-term borrowings are expected to positively impact leverage indicators, going forward. The ratings remain dependent upon the strict adherence of PPA covenants by the CPPA and compliance of financial covenants by QATPL.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: http://jcrvis.com.pk/