PPI Original Text (PPI-OT) – Pakistan Credit Rating Agency Limited assigns ratings to Halmore Power Generation Company Limited

Lahore, May 15, 2012 (PPI-OT): The Pakistan Credit Rating Agency Limited (PACRA) has assigned to Halmore Power Generation Company Limited (HPGCL) long-term and short term entity ratings of “AA-” (Double A Minus) and “A1+” (A One Plus), respectively. The ratings denote a very low expectation of credit risk emanating from a very strong capacity for timely payment of financial commitments.

The ratings of HPGCL reflect GoP guaranteed stream of cash flows till the life of Power Purchase Agreement (PPA) signed between the company and NTDC; the power purchaser. However, the guarantee is subject to adherence to agreed performance benchmarks, which mainly relate to Operations and Maintenance of the power plant.

The appointment of General Electric (GE), as the Operations and Maintenance (O and M) contractor would transfer any entity related liability on GE, in case of non compliance. However, given relatively new exposure to Pakistani IPPs industry, it would be challenging for GE. Nevertheless, upholding a strong governance structure along with effective monitoring of the plant operations by the management would ensure sustainability of operations on agreed parameters as per PPA.

The weak financial discipline of the sole customer, National Transmission and Despatch Company (NTDC), is the key challenge faced by the company. However the sponsors of HPGCL remain committed in honouring financial obligations. IPPs continue to experience volatile payment pattern from GoP.

Recently there has been significant delays in such cash flows. Consequently, few IPPs including HPGCL, have invoked the government guarantee. However, PACRA believes that despite all financial problems, GoP would not let any such situation to arise resulting in closure of an IPP, in turn, sovereign default. Nevertheless, keeping in view the ongoing situation and uncertainty as to timeliness of money flow, PACRA is keeping the ratings of HPGCL under Rating Watch.

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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