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PACRA Maintains Entity Ratings of Chanar Energy Limited

Lahore, November 23, 2022 (PPI-OT):Chanar Energy Limited has a 22MW bagasse-based power plant which is adding renewable energy to the national grid. The IPP model is designed to create synergy and higher efficiency gains between IPP and sugar mill. Sustainable business profile of Chanar Energy emanates from the demand risk coverage under Energy Purchase Agreement signed with CPPA-G and ‘Bagasse supply and Steam Purchase Agreement’ with Chanar Sugar Mills Limited, a related entity. However, procurement of raw material, solely from the associated concern, Chanar Sugar Mills, poses constraints on generation capability and cash flow stream of the Company.

The main risk factor affecting the stability of return is the availability of bagasse at a price higher than the assigned fuel component, by NEPRA. The ratings reflect company’s average credit quality and liquidity profile. Plant availability during last crushing season was reported at 36% (132 days), while during off season it remains unavailable. Outlook has been changed to “Stable” due to growth in the topline and profitability, emanating majorly from improved energy export as well as repayments of the company’s debt obligations till Nov22.

Further confidence is drawn from availability of enough liquid funds due to timely recoveries from power purchaser to service upcoming debt installments. The company does not rely on any short-term credit lines. Company had a project debt of PKR 2,200mln repayable till Feb 2029 in 40 quarterly installments. Up till now, the due debt obligations are met through energy receivables. The company has recently started getting O and M cost from consortium on monthly basis after approval of all members FIs. The leverage is high in comparison to the equity base.

Rating Watch signifies the prevailing uncertainty pertinent to company’s financial muscles, and timely debt servicing. The ratings are dependent on Chanar Energy’s ability to sustain its business and financial profile; any deterioration in margins, leading to weak coverages and pressure on liquidity, will have a negative impact on ratings. Financial support from sponsors remains imperative in the long term.

For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com