Pakistan Credit Rating Agency revises Entity Ratings of Sapphire Electric Company

Lahore, November 30, 2012 (PPI-OT): The Pakistan Credit Rating Agency Limited (PACRA) has revised the long-term and short term entity ratings of Sapphire Electric Company Limited(SECL) to “A+” (A Plus) and “A1″ (A one), respectively [Previous: AA-/A1+]. The ratings denote a low expectation of credit risk.

The ratings of SECL incorporate continuing pressure of inter-corporate debt on liquidity profile of the power sector in general, and IPPs in particular. The current regulatory structure, wherein sovereign guarantee is provided for timeliness of cash flows, given adherence to agreed performance benchmarks, ensures low business risk. This remains a critical factor in SECL’s ratings.

However, at the same time, the company cannot fully isolate itself from sector related risks, that has constrained its financial profile. On a stand-alone basis, SECL is currently managing its plant operations adequately. However, SECL, faced with its gas curtailment, has to manage additional operational pressure in terms of procurement of high cost alternative fuel – HSD – that requires higher working capital. Nevertheless, SECL is managing these pressures in an adequate manner. Furthermore O and M operations have been outsourced to GE which is responsible for operating the plant with adherence to PPA. Lately, certain differences with NTDC on another critical benchmark – availability – have led to lower capacity payments.

However, the company expects a positive outcome. Although weak financial discipline of the sole customer, NTDC, remains the key challenge, the ratings draw comfort from SECL’s association with a vibrant sponsor – Sapphire Group. Presence of key stakeholders on the board ensures a good governance framework.

For more information, contact:
Hammad Rashid
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com

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