IGI Securities Limited - Day Break (07 July 2023)

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IGI Securities Limited – Day Break (07 July 2023)

July 7, 2023

Karachi, July 07, 2023 (PPI-OT): CPPA Disburses PKR 142bn to Clear Circular Debt Pile up

As per news in circulation, Central Power Purchasing Authority (CPPA) has disbursed PKR 142bn to IPPs on account of circular debt payment. Payments have been made to nearly 80 IPPs where coal based IPPs have received the highest share amounting to PKR 44.7bn followed by PKR 39.5bn payment to RLNG based plants

Out of all the IPPs, HUBC received highest share of PKR 17.9bn or PKR 13.8/share (PKR 11.1bn or PKR 8.6/share adjusted for stake) as payments were made to all 6 plants. KAPCO received PKR 4.3bn (PKR 4.8/share) whereas PKGP received PKR 2.5bn (PKR 6.7/share).

We expect some of the listed companies could potentially pay-out cash dividend which have lower borrowings on their books. Dividend pay-out could be limited for IPPs with higher short term borrowings and lower cash position in order to prioritize payment of short term borrowings amid high interest rates.

CPPA Disburses PKR 142bn to IPPs

Payments made to cash starved IPPs amid historic high circular debt position

The total circular debt as of May-23 stood at PKR 2,646bn as circular debt pilup during 11MFY23 was reported at PKR 394bn. The payment of PKR 142bn to IPPs have been made at a time when new SBA with IMF has been signed where IMF has emphasized on reforms in energy sector. To recall, Government made total of PKR 385bn payments to IPPs falling under Power Policy (PP) 1994 and 2022 last year.

HUBC received highest share owing to higher capacity Out of all the IPPs, HUBC received highest share of PKR 17.9bn or PKR 13.8/share (PKR 11.1bn or PKR 8.6/share adjusted for stake) as payments were made to all 6 plants. KAPCO received PKR 4.3bn (PKR 4.8/share) whereas PKGP received PKR 2.5bn (PKR 6.7/share). NPL and LPL received PKR 2.0bn each translating into PKR 5.6/share and PKR 5.3/share respectively. NCPL received PKR 1.6bn (PKR 4.4/share).

Disbursement of payments may translate in to cash dividends

PKGP could potentially pay-out higher portion of payment due to negligible short term borrowings. KAPCO and NPL could also pay-out higher dividend due to healthy cash position. However, cash pay-outs maybe limited for SPWL, NCPL, EPQL and KOHE due to significantly higher short term borrowings. HUBC may pay-out anywhere between PKR 8- 9/share if it does not utilize the amount for reducing short-term borrowing and payables.

Cash position for PSO and Sui companies could also improve

As payments are made to RLNG and gas based plants, we expect PSO and Sui companies (SNGP and SSGC) to also indirectly receive payments via gas based IPPs. This would intern improve cash position for these companies, however, due to significant short term borrowings on PSO’s balance sheet we expect company to prioritize payment of its loan.