Term Finance Certificates issuance for energy sector likely

ISLAMABAD: In another attempt to ease the liquidity problems of the energy sector, the government has decided to issue Term Finance Certificates (TFC) worth Rs137bn with industry grapevine suggesting the transaction is likely to be exhausted within couple of days.

According to Topline Securities analysis report, the transaction will clean the balance sheet (reduce short-term borrowing) of the energy sector companies by Rs109bn, while another Rs28bn would be fresh injection in the system.

For the banks it would slightly reduce the NPLs (Non-performing Loans) in short term and may lead to one time positive impact on earnings. Overall, the transaction aims to revitalized the lending capability of the banking sector to the energy chain. However, we re-iterate that the transaction is only a short-term remedy for the circular debt with full and final solution of the problems lies in the complete revamp of the energy sector that include removal of power subsidies.

Impact on PSO, the arrangement suggest that, PSO is expected to receive a gross amount of Rs40bn, primarily from Hubco and Kapco, while it would be paying Rs13bn to refinery sector. Thus, residual amount (net) would be Rs27bn, which would be utilized to settle its short-term borrowing. We expect the transaction to augment company’s FY12 earnings by Rs7 per share.

Impact on IPPs, amongst the major IPPs i.e. Hubco and Kapco, are expected to receive a net amount of Rs20bn (gross amount Rs39bn) and Rs15bn (gross amount Rs35bn), respectively, which would be primarily used to settle their short-term obligation to the banking sector. The transaction will improve liquidity position of both the companies; however, there will be no major impact on earnings since lower financial charges would be offset by reduction in interest earned on overdue receivables.

Similarly, small listed IPPs like NPL and NCPL the transaction would reduce their short-term borrowing by Rs2bn and Rs4bn, thus having a positive impact on company’s balance sheet. This will allow smooth operation of the plant ensuring their returns.

Impact on Refineries, as far as listed refineries are concerned, only PRL will get net amount of Rs1bn while ATRL would indirectly get benefit through improved cash position of Attock Gen which is likely to get net amount of Rs6bn.

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