Karachi, September 15, 2021 (PPI-OT): Pakistan Power: Circular debt settlement 2002 IPPs next in line

In a follow up to the MoUs signed with IPPs in Aug’20, CCoE has recently directed power division to clear the outstanding payments for the IPPs operating under 2002 PP, as per news reports. The second installment for 1994 and pre 1994 PP IPPs is expected in Nov’21; we believe 2002 IPPs’ first tranche of circular debt settlement will likely be clubbed with it.

KAPCO received PkR13bn in cash in the first settlement and paid out PkR7.5bn (PkR8.5/sh) or ~60% in terms of payout in 4QFY21. In similar vein, HUBC received PkR7.6bn in cash, and paid out entirely in form of dividends (PkR5.0/sh). The IPPs operating under 2002 PP may also be able to liquidate PIBs and Sukuks, unlocking payout potential.

NPL and NCPL are expected to receive PkR7/sh and PkR4/sh in terms of cash, respectively in first tranche, which could translate into DY of 36% and 30%, respectively. NCPL, however, is still facing investigations as per news reports, underscoring our preference for NPL.

Meanwhile, adjusting total receivables for liabilities, fixed cost and payouts already announced, KAPCO still has a potential to pay out PkR30bn in next 12 months, especially if it manages to liquidate PIBs and Sukuks in entirety. In case of HUBC, payables and short term debt at 180% of total settlement amount keeps us skeptical at the sustainability of healthy payout witnessed in FY21.