PACRA Maintains Entity Ratings of Habibullah Coastal Power Company (Private) Limited

Lahore, November 15, 2019 (PPI-OT): Habibullah Power’s Gas Supply Agreement (GSA) with Sui Southern Gas Company Limited (SSGCL), expired in Sep 2019. The company applied for renewal of GSA in Mar 2018. Recently Economic Coordination Committee (ECC) has approved the proposal by power division for supply of gas to plant for interim period of 3 to 6 months. Under this interim agreement (i) the company will have a ‘take and pay’ tariff by virtue of which the company will generate revenue only when electricity is supplied to the power purchaser (ii) Gas will be available on ‘As and when available’ basis (iii) No liquidity damages relating to gas supply or electricity supply will be applicable. The company is in negotiation with SSGCL for finalization of GSA.

The Company had won an Arbitration Award against SSGCL and recorded the same in the audited financials for the year 2018. The company’s project debt has been paid and it only borrows to meet its short term needs or for BMR purposes. Consequently, the Company continues to enjoy sound coverages, underpinned by leveraged structure.

There is uncertainty as to the timely finalization of GSA with SSGCL. The ratings have a developing outlook and are placed on rating watch. PACRA would review the ratings once these agreements are finalized. The management is confident based on rational argument as to the finalization of GSA and continued operations of the Company.

Comfort can be drawn from Company’s low leveraged balance sheet and lower net working capital lines utilization after adjustment of cash and short term investments as at 30 Sep 2019. Although well-managed, in-house O and M activities expose the company to operational risk; thus upholding strong operational performance in line with agreed performance levels would remain a key driver of the ratings. Meanwhile, finalization of GSA is in process, while timely finalization of the same is essential for the ratings.

For more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com

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