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The Pakistan Credit Rating Agency Limited

Date
31-Aug-2017
Analysts
Rai Umar Zafar
rai.umar@pacra.com

Muhammad Hassan
muhammad.hassan@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Correlation between long-term and short-term rating scale (Jun 17) [View]

Related Research

  • Sector Study | Power Generation (Mar 17) [View]
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PACRA Assigns Initial Entity Ratings to Harappa Solar (Pvt.) Limited
 Rating Type Entity
Current
(31-Aug-2017)
 Action Initial
 Long Term A-
 Short Term A1
 Outlook Stable
 Rating Watch -

Harappa Solar (Pvt.) Limited is in the process of setting up an 18MWp – Pakistan’s first solar power plant with single axis sun tracking technology. The company opted for upfront tariff which assumes solar risk to be borne by the company. The rating takes comfort from plant’s latest technology which gives it extra cushion of 2.1 percentage points over required plant factor – 17%, minimizing solar risk. The company has signed Energy Purchase Agreement with Central Power Purchasing Agency (CPPA-G) for a period of 25 years. The company achieved financial close on 23 February 2017. The company has signed offshore supply contract with SUMEC Hardware & Tools Company Ltd, China and onshore contract with Sumec Pakistan (Pvt.) Ltd. Required COD is 8 months from financial close (October 22, 2017) however, company is expecting to achieve COD on 30th September 2017. Given current pace of work, completion risk is well managed. The transmission line from project site to grid station constructed by MEPCO is completed, limiting evacuation risk. The company has availed both foreign and local loan to finance the debt. Foreign loan, covered through SBLC from local financial institutions, is availed from ECO Trade and Development Bank Turkey. Local loan is received from The Bank of Punjab and Askari Bank Limited. The company is required to maintain DSRA equivalent to two debt repayments under financing documents, this requirement is being met by SBLC from sponsors. Going forward, the company plans to fund DSRA from internal cashflows.

Successful achievement of COD and upholding operational performance afterwards in line with agreed performance levels are critical for rating. Maintenance and buildup of DSRA from internal cash flows, power purchaser’s payment behavior, working capital management and debt repayment pattern will impact direction of rating.
About the Entity
Harappa Solar (Pvt.) Limited, incorporated in September 2014, is a Renewable Energy Independent Power Producer (RE IPP) operating under the Renewable Energy Policy 2006 by AEDB. The 18MWp solar plant is being set up at Harappa bypass, Sahiwal, Punjab. The total cost of the project is USD 24.4mln. Debt financing constitutes 75% of the project cost i.e. USD 18.3mln, which is financed from local and foreign financial institutions in ratio of 55:45. The overall facility has a ten year repayment period commencing Mar-18.

Harappa Solar is primarily sponsored by Rana Nasim Ahmed with 75% shareholding, other significant shareholders are Mr. Khaqan Babar Cheema (13%) and Windforce (Pvt.) Ltd (11.8%). Mr. Khaqan Babar Cheema is CEO of Orient Cargo - a logistics company and Windforce is a renewable energy power generation company from Sri Lanka. Harappa Solar’s Board of Directors (BoD) comprises eight members. Rana Nasim is the Chief Operating Officer and shareholder of JDW Sugar Mills with 7.5% stake. He is associated with JDW Sugar mills since 2001. Harappa Solar has a lean management structure spearheaded by Chief Executive officer – Rana Uzair Nasim. He is assisted by a young management team.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.
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