Karachi, December 31, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Zephyr Power Limited (ZPL) at ‘A/A-2’ (Single A/A-Two). Long Term Rating of ‘A’ reflects good credit quality, adequate protection factors. Risk factors may vary with possible changes in the economy. Short Term Rating of ‘A-2’ indicates good certainty of timely payment and sound liquidity factors. Access to capital markets is good while risk factors are small. Outlook on the assigned ratings is ‘Stable’. Previous rating was announced on November 26, 2020.
Incorporated as a private limited company in 2005 with recent conversion into a public unlisted company in June 2021, Zephyr Power Limited (“Company”) principally operates a Wind Independent Power Project (IPP) with 25 Wind Turbine Generators (WTGs) located in Gharo, Thatta, Sindh. The IPP interconnection is connected to the national grid which is maintained and operated by the National Transmission Despatch Company (NTDC). The Company has signed an Energy Purchase Agreement (EPA) with the Central Power Purchasing Agency (Guarantee) Limited (CPPA-G). Commercial Operations was achieved in Mar’19 while takeover by management from EPC contractor was completed in Oct’19.
Reaffirmation of ratings encapsulates strong profile of primary sponsor, which comprises of foreign investment by a Development Finance Institution (DFI) wholly owned by UK Government. The remaining sponsors comprises of a consortium of local partners contributing through equity and management. Ratings also draw comfort from presence of Debt Service Reserve Account (DSRA) and CPPA-G’s commitment of timely payment of receivables for debt servicing which continues to provide comfort to the ratings. Also, presence of (20 years) long-term Energy Purchase Agreement (EPA) with CPPA-G mitigates off-take risk while adequate insurance coverage is also in place. Moreover, operational risk remains minimal given O and M contractor’s track record of international experience, and fulfillment of obligations towards the company till date.
During FY20-21, operating performance was impacted primarily due to low wind resource availability. Consequently, the IPP had a net annual capacity factor of 33.86% (FY20: 41.84%) in FY21 which was below the base net annual capacity factor. However, post year end the IPP is generating in line with expectations due to better wind resource. As a result, net revenues declined in FY20-21. Gross margins and operating margins were also impacted on account of higher operational expenses during the outgoing year; however decline in net margins was limited due to reduction in finance costs.
Debt servicing remained satisfactory with liquidity profile and sufficient internal cash for working capital management. Operational deficiencies or payment delays in the future may lead to some liquidity pressure. Till date, CPPA-G continues to make payments within manageable timeframe. Capitalization indicators depicted improvement in FY20-21 on account of increase in equity base and decrease in debt financing with scheduled debt repayments. Gearing and leverage levels are expected to remain low over the rating horizon on account of projected profitability and minimal capex plans going forward.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/