VIS Upgrades FFBL Power Company Limited’s Rating Amid Strong Financial Performance

Karachi: VIS Credit Rating Company Limited has elevated the entity rating of FFBL Power Company Limited from ‘AA-/A1’ to ‘AA/A1.’ The revised rating indicates high credit quality and strong protection factors, with a stable outlook. The upgrade reflects the company’s robust financial performance, enhanced liquidity, and reliable revenue streams.

FFBL Power Company Limited operates a 118 MW coal-fired power plant, which has been functional since May 2017. The company serves as a subsidiary under Fauji Fertilizer Company Limited, part of the Fauji Foundation’s umbrella. Its primary operations involve generating power and steam for the fertilizer complex at Port Qasim, while also supplying electricity to K-Electric.

The upgraded ratings consider the medium to low business risk profile of Pakistan’s non-renewable power sector. This sector benefits from consistent electricity demand, high entry barriers, and long-term power purchase agreements that mitigate short-term market fluctuations. However, regulatory oversight and financial constraints related to circular debt pose ongoing challenges. Notably, FPCL’s independent power purchase agreements shield it from these circular debt issues.

Despite stable demand, FPCL faces competitive pressures due to underutilization and a national shift towards renewable energy. Long-term agreements with its parent company and K-Electric mitigate offtake risk, although positioning on K-Electric’s merit list remains crucial. The transition to spot rate fuel procurement after ending a long-term coal supply agreement has heightened fuel supply risks.

Financially, FPCL has shown resilience with increased revenue driven by tariff adjustments and stable demand. Gross margins were slightly affected by fuel cost adjustment delays, but improved operating margins were supported by insurance claims. Profitability was bolstered by reduced finance costs and associate income. The full repayment of long-term debts has lowered the company’s debt burden, enhancing its capitalization metrics and liquidity.

The rating upgrade underscores FPCL’s strengthened financial position, as it continues to navigate sector challenges while capitalizing on its stable revenue streams and improved capitalization.