Liberty Wind Power 2 Limited

CREDIT RATING REPORT | Feb-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
18-Feb-25 A A2 Stable Maintain -
20-Feb-24 A A2 Stable Maintain -
01-Mar-23 A A2 Stable Upgrade -
04-Mar-22 A- A2 Stable Maintain -
04-Mar-21 A- A2 Stable Initial -
About the Entity

LWP2, incorporated in April 15, is a Renewable Energy Independent Power Producer operating under the Renewable Energy Policy 2006 by AEDB. The Company is wholly owned by Liberty Group. The total estimated cost of the project is USD 63.90mln. Debt financing constitutes 80% of the project cost i.e. USD 51.12mln, which is financed from foreign and local financial institutions at 3MLIBOR plus 4.25% and under SBP re-financing scheme at 3% plus 1.5% respectively. Mr. Azam Sakrani is the CEO of the Company. He is supported by the experienced management team. comprises qualified professionals with sufficient experience.

Rating Rationale

Liberty Mills Limited has established a 50MW wind power project, “Liberty Wind Power 2 Limited” (LWP2 or the Company), located in Jhimpir, District Thatta, Sindh. Operating within the regulated power sector, the Company is awarded a cost-plus tariff, with the payments to be received from power purchaser backed by the sovereign guarantee. LWP2 successfully achieved its Commercial Operations (COD) on May 27th, 2022 and has been supplying electricity to the national grid since then. Siemens Gamesa Renewable Energy (Private) Limited and Orient Energy Systems (Private) Limited serve as the long-term Operations & Maintenance (O&M) contractors for an 11-year term. These contractors are responsible for maintaining operational benchmarks, including an availability rate of 97% and a capacity factor of 38%. This provides additional cushion for the sustainable financial risk profile. The Company also maintains a Debt Service Reserve Account (DSRA) backed by six months' Standby Letters of Credit (SBLCs), providing sufficient coverage for its financial obligations through maturity. The foreign and local components of the loan have maturities of 13 years and 10 years, respectively, with quarterly repayments that began in September 2022.
LWP2’s revenues and cash flows are subject to wind risk due to seasonal variations in wind speed, which may impact electricity generation and cash flow stability. However, historical wind speed data offers confidence in the Company's ability to generate sufficient cash flows to manage its financial risks effectively. As per the Energy Purchase Agreement ("EPA") signed with the power purchaser, in case of non-project missed volumes the power purchaser shall be liable to pay the missed volumes calculated using tariff rates. Additionally, the Company holds comprehensive insurance coverage to mitigate risks such as business interruptions and marine & erection-related incidents. During FY24, LWP2 generated approximately 169 million units of electricity, reporting revenues of PKR 2,511mln (FY23: 140mln units and revenues of PKR 1,864mln). Free Cash Flows from Operations (FCFO) for June 2024 stood at PKR 2,001mln, with total receivables recorded at PKR 943mln, primarily comprising unbilled amounts from the power purchaser. The Company has consistently met its quarterly debt repayment obligations, having repaid 16,8% of foreign and 23.25% of local project loan to date. The Company efficiently manages its working capital requirements through internal cash generation, with minimal reliance on external debt financing. LWP2 has applied for an adjustment/true-up in its original tariff decision, which is currently under review by the relevant authority.

Key Rating Drivers

Comfort is drawn from LWP2’s group association, having strong financial backing and relevant industry expertise. Moving forward, the Company's strong ability to generate stable cash flows will play a key role in ensuring timely repayments of project debt, reinforcing financial stability and growth. Any changes in the regulatory environment could potentially impact the ratings.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Liberty Wind Power 2 Limited

rating analysis

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Profile
Plant

Liberty Wind Power 2 Limited ("LWP2" or "the Company") is a Renewable Energy Independent Power Producer (RE IPP) developed under the Renewable Energy Policy 2006. The Company has set up 50MW wind power plant located in Jhimpir District Thatta, Sindh.


Tariff

Liberty Wind Power-2 Limited is awarded cost-plus tariff for wind power projects by NEPRA. Under NEPRA tariff determination for wind IPPs, the Company has a generation tariff PKR 7.331 per Kilowatt hour (KWh) for years 1-10 and generation tariff of PKR 2.4026 per Kilowatt hour (KWh) for years 11-25. The levelized tariff for the project is US Cents 4.7824/KWh at the time of the financial close. The Company has filed the petition on March 9, 2023, for Tariff True Up / One Time Adjustment of reference tariff rate, decision on which is still awaited.


Return on Project

The dollar IRR of Liberty Wind Power 2, as agreed with NEPRA, is 14%.


Ownership
Ownership Structure

Liberty Wind Power-2 is majority owned by Liberty Group (Liberty Mills Limited: 99.9%).


Stability

The stability of Liberty Wind Power 2 is anchored in the power purchase agreements established between the Company and its off-taker. As a subsidiary of the Liberty Group, one of Pakistan’s largest and most reputable conglomerates, LWP2 benefits from a strong and stable ownership structure that has remained consistent over an extended period.


Business Acumen

Liberty Mills Limited incorporated in February 1965, is in the business of manufacturing and processing all kinds of textile fabrics and made-ups. The group has demonstrated financial discipline through out its history. Liberty group has gradually diversified into the power sector.


Financial Strength

Sponsors have the ability to support the entity both on a continuing basis, and support in times of crisis. Financial strength of the sponsors is considered strong as sponsors have well diversified profitable businesses.


Governance
Board Structure

The board is primarily composed of representatives from the sponsor. It consists of three directors, all of whom are from Liberty Group. Mr. Azam Sakrani serves as the CEO, Mr. Muhammad Ali holds the position of  Executive Director, and Mr. Kashif Hanif is both the CFO and a Director of the company.


Members’ Profile

Azam Sakrani is the chairman and CEO of Liberty Wind Power 2. He has worked in the Liberty Group in various rolesand has a lot of experience. He also has over 20 years of experience in banking, finance, and industrial finance. Qualified and experienced board, providing strategic guidance to the management and ensuring quality internal control framework.


Board Effectiveness

Company's board members conduct board discussions where important matters related to the plant’s efficiency, and monthly budgets are discussed. The board has been actively involved in providing strategic guidance to the Company and implementing strong internal control framework.


Financial Transparency

Yousuf Adil Chartered Accountants are the external auditors of the Company. They have expressed an unqualified opinion on the Company’s financial statements at end-Jun24.


Management
Organizational Structure

The organizational team comprises qualified professionals possessing sufficient experience in various sectors. The Company has a well-defined organizational structure with the CEO reporting to the board.


Management Team

Mr. Azam Sakrani, the CEO, carries with him over two decades of experience in the banking and finance industry and industrial finance. Mr. Kashif Hanif, a member of the Institute of Cost and Management Accountants of Pakistan, is the CFO. The management team comprises qualified professionals possessing sufficient experience in various sectors.


Effectiveness

Over the years company’s effective management played a significant role in empowering the organization through its progressive results and systematic decision making. The Company has shown improvements in profit over the years and is repaying all its debt obligations on time.


Control Environment

The Company has appointed third party contractors for regular operations and maintenance of the plant while the management oversees day to day financial and business matters.


Operational Risk
Power Purchase Agreement

Liberty Wind Power-2 has been developed under the Renewable Energy Policy 2006. EPA is with CPPA-G, has tenure of 25 years from 2022 and as per the Energy Purchase Agreement ("EPA") signed with the power purchaser, in case of non-project missed volumes the power purchaser shall be liable to pay the missed volumes calculated using tariff rates. The company shall be responsible for the availability of the complex for generation and delievery of Net Delievered Energy.


Operation and Maintenance

Hydrochina International Engineering Company Limited & Hangzhou Huachen Electric Power Control Company were the EPC contractors for the project. With the completion of the EPC role and the expiry of the two-year guarantee period, Siemens Gamesa Renewable Energy (Private) Limited and Orient Energy Systems (Private) Limited have now been appointed as the long-term O&M contractors for a period of 11 years.


Resource Risk

As per the EPA, Liberty Wind Power-2 is responsible for the availability of the complex for generation and delivery of net delivered energy. Furthermore, LWP2 is responsible, at any time that the speed of wind at the site is within the cut in wind speed and cut out wind speed for the generation and delivery of net delivered energy.


Insurance Cover

Liberty Wind Power-2 has secured insurance coverage for material damage and third-party liability. Additionally, the Company maintains comprehensive insurance to mitigate risks related to business interruptions and operational hazards, ensuring continued financial and operational stability.


Performance Risk
Industry Dynamics

In FY24, the total electricity generation of the country within CPPA-G system in FY24 is 127,837 GWh from which Wind constitutes 3.08% and generates 3,941 GWh of electricity. The overall capacity of electricity production of Pakistan is 42,512 MW from which Wind has a share of 4.32%. Wind has a capacity of 1,838 MW.


Generation

LWP2 achieved COD on 27th May 2022 and has been supplying electricity to the National Grid since then. In FY24, LWP2 produced ~163mln units, including around 58mln NPMV units. The Company has maintained the capacity utilization rate based on a full capacity of 328.8mln units/year.


Performance Benchmark

The required availability for LWP2 under the EPA is 97%. Meanwhile, the capacity factor is 38%. The Company has acheived the capacity factor of 38.65% in FY24 and 28.8% in 6MFY25. EPC contractors will be liable to pay Liquidated Damages (LDs) as per the contract if benchmark performance ratio is not met.


Financial Risk
Financing Structure Analysis

The total project cost is ~ USD 63.90mln, consisting of 80% of debt (~USD 51.12ml) and 20% of equity (~USD 12.78mln). The debt financing constitutes available foreign loan of ~USD 27mln (3MLIBOR+4.25%) and local loan of ~PKR 4.9bln (SBP refinancing rate of 3% + 1.75%). The Company utilized the foreign loan of  ~USD 25mln and local loan of ~ PKR 4.3bln. The local loan is eligible for refinancing under the State Bank of Pakistan (SBP) Financing Scheme for Renewable Energy. The foreign loan has the maturity of 13 years while the local loan has maturity of 10 years. Both the local and foreign loan are repayable in quarterly installments. The Company has paid ~USD 4.2mln (16.8%) of its foreign loan and a total of ~USD 21mln loan is outstanding. The Company has paid ~PKR 1bln (23.25%) of its local loan with the remaining outstanding loan of ~ PKR 3.2bln.


Liquidity Profile

As at FY24, total receivables of the Company stood at PKR 943mln as compared to PKR 1,314mln of receivables in FY23. LWP2 has been receiving regular payment from the purchaser. The Company has no short-term borrowings, and its trade receivable days have decreased from 168 days in FY23 to 164 days in FY24, reflecting a sound liquidity profile.


Working Capital Financing

Renewable IPPs do not have to pay for fuel which minimize their working capital needs. Nonetheless, LWP2 has secured working capital line of PKR 1,000 million, which remained unused as of FY24.


Cash Flow Analysis

The stability and sustainability of cash flows of Liberty Wind Power-2 depends completely on the continuous performance of its wind turbines. LWP2 had FCFOs of PKR 2,001mln at end FY24 (FY23: 1,443mln) while its coverage ratio (FCFO/Finance Cost) was reported at 2.2x in FY24 (FY23: 1.8x). The Company has been maintaining the Payment Service Reserve Account (PSRA), which is equivalent to two quarterly payments (6 months). PSRA is filled by 6 months SBLC.


Capitalization

The Company has been paying its principal and interest instalments as per its agreement and has successfully repaid ~16.8% of foreign and ~23.2% of local debt till FY24. Notably, the Company has exclusively relied on project financing and is not dependent on any other form of borrowing. As aresult, the leverage ratio stands at 75.7% in FY24, improving from 82.2% in FY23.
 
 

Feb-25

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Liberty Wind Power 2 Limited

financial summary

(PKR mln)

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Jun-24
12M		 Jun-23
12M		 Jun-22
12M
Audited Audited Audited
A. BALANCE SHEET
1. Non-Current Assets 11,924 12,640 11,174
2. Investments 0 0 0
3. Related Party Exposure 512 659 0
4. Current Assets 1,071 1,799 3,462
a. Inventories 0 0 0
b. Trade Receivables 943 1,314 403
5. Total Assets 13,507 15,099 14,636
6. Current Liabilities 824 1,083 2,315
a. Trade Payables 683 1,006 2,238
7. Borrowings 9,411 11,327 9,358
8. Related Party Exposure 187 187 682
9. Non-Current Liabilities 0 1 0
10. Net Assets 3,086 2,501 2,281
11. Shareholders' Equity 3,086 2,501 2,281
B. INCOME STATEMENT
1. Sales 2,511 1,864 361
a. Cost of Good Sold (998) (810) (104)
2. Gross Profit 1,513 1,054 258
a. Operating Expenses (38) (60) (18)
3. Operating Profit 1,475 994 240
a. Non Operating Income or (Expense) 34 47 1
4. Profit or (Loss) before Interest and Tax 1,508 1,041 241
a. Total Finance Cost (913) (808) (51)
b. Taxation (10) (14) (4)
6. Net Income Or (Loss) 585 220 186
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 2,001 1,443 684
b. Net Cash from Operating Activities before Working Capital Changes 1,087 685 424
c. Changes in Working Capital 185 (2,495) 1,427
1. Net Cash provided by Operating Activities 1,272 (1,810) 1,851
2. Net Cash (Used in) or Available From Investing Activities 34 37 (6,634)
3. Net Cash (Used in) or Available From Financing Activities (1,046) (776) 7,242
4. Net Cash generated or (Used) during the period 259 (2,549) 2,459
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) 34.7% 415.7% N/A
b. Gross Profit Margin 60.3% 56.5% 71.3%
c. Net Profit Margin 23.3% 11.8% 51.5%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 87.1% -56.4% 584.0%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 17.9% 8.9% 12.6%
2. Working Capital Management
a. Gross Working Capital (Average Days) 164 168 407
b. Net Working Capital (Average Days) 41 -150 -1853
c. Current Ratio (Current Assets / Current Liabilities) 1.3 1.7 1.5
3. Coverages
a. EBITDA / Finance Cost 2.2 1.8 13.9
b. FCFO / Finance Cost+CMLTB+Excess STB 1.1 1.8 0.6
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 8.8 16.5 15.0
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 75.7% 82.2% 80.7%
b. Interest or Markup Payable (Days) 10.4 0.0 386.3
c. Entity Average Borrowing Rate 8.7% 7.8% 0.9%

Feb-25

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Liberty Wind Power 2 Limited

rating scale

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Feb-25

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Liberty Wind Power 2 Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
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      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
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