Lahore, February 28, 2022 (PPI-OT):The ratings reflect the strong business profile of Sapphire Electric Company Limited (“Sapphire Electric” or “The Company”) emanating from the demand risk coverage under the Power Purchase Agreement signed between CPPA-G (Central Power Purchasing Agency) and the Company. Meanwhile, the Implementation Agreement provides a sovereign guarantee for cashflows, given adherence to agreed performance benchmarks. Nevertheless, delayed payments from the power purchaser remained a challenge. The ratings incorporate low operational risk, a result of the performance of General Electric – the O and M operator.
The primary fuel of the plant is Regasified Liquefied Natural Gas (RLNG) which is supplied by Sui Northern Gas Pipeline Limited (SNGPL). Thus, fuel supply risk is considered adequate, pertaining to the meaningful addition of RLNG in Pakistan’s fuel mix. During the period, 6MFY22 and FY21, Sapphire Electric provided ~437GWh, and ~568GWh of electricity to the national grid and recorded sales revenue of PKR ~10,279mln and PKR ~12,184mln along with a Net Profit of PKR ~1,138mln and PKR ~2,528mln respectively.
Delayed payments from the power purchaser pose pressure on the Company’s working capital requirements, because of the mounting receivables, in order to carter the issue the Company has arranged amicable working capital lines out of which 63% had been utilized as of FY21. The Company has received its first installment on Jan 21 (40% of outstanding receivables in form of 1/3rd cash, 1/3rd PIB and 1/3rd Sukuk’s) under the agreement signed with CPPA-G, this will improve the liquidity, rest 60% will be received after 6 months of the first installment.
Pursuant to this agreement the Company has revised its ROE in respect of local equity (80%) to 17% from 15% with no dollar indexation, and for foreign equity (20%) to 12% from 15% with dollar indexation. Sapphire Electric project-related debt has been completely paid off in Sep’20. The Company has also made an investment (100%) in Sapphire Hydro Limited, a Hydro Power project of 150MW in Sharmai Khyber Pakhtunkhwa.
Upholding operational performance in line with agreed performance levels would remain a key rating driver. The Company’s association with Sapphire Group provides comfort to the ratings. Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels remain important.
For more information, contact:
Analyst,
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