After a delay of three months since the payments to the Independent power producers (IPPs) became due as per August 2020 MoUs, the federal cabinet on Wednesday finally accorded approval to the clearance of first installment to the IPPs.
The government is due to clear these receivables till June 7, 2021. The 40 percent settlement of dues is expected to comprise one-third cash, one-third Pakistan Investment Bonds (PIBs) and one-third Sukuk, where the second installment is expected to follow within six months.
However, the settlement of dues for 2002 power policy IPPs (NPL and NCPL) still hangs in the balance due to alleged excess profits they have earned. Some of the best placed bets in the power sector on upcoming payments could be KAPCO, followed by PKGP and ALTN, for whom liabilities amount to 46/33/20% of the receivables respectively, said Ailia Naeem, a senior research analyst at AKD Securities. If KAPCO decides to retire liabilities in proportion to the settlement amount, it may still receive cash worth Rs9 per share in June this year and Rs14 per share subsequently. This indicates a potential payout ability of Rs 25 per share in next 12 months. The senior research analyst added that even if KAPCO pays out 50 percent of the aforementioned amount, it still translates into a D/Y of 30% at last close. Meanwhile, HUBC, which has already paid Rs7 per share in 9MFY21 may likely remain conservative in payouts, given one of the highest liabilities to receivable ratios.
“Meanwhile, NAB is likely to also give clean chits to 2002 IPPs (NPL and NCPL), since further delay could jeopardise government’s efforts to convert their return on equity (RoEs) from 15% in US$ terms to 17% in Rs, as well as switching to ‘Take and Pay’ form of agreement post competitive bidding market,” she maintained. PkR9.3 billion of receivables from HUBC is expected to be settled in first installment for Pakistan StaO: As of March this year, PSO’s receivables from power sector stood at PkR93.5 billion and of that amount private IPPs owe PSO PkR23.3bn which entirely is from HUBC. Assuming HUBC clears receivables of PSO in the same manner, the Government of Pakistan (GoP) intends to clear receivables of IPPs i.e. 40% of the total amount to be cleared in first installment of which one third is expected to be in cash while the remaining amount is expected to be settled in PIBs and T-Bills, cash inflow for PSO is expected to be Rs6.6 per share while Rs6.2 billion in PIB and T-Bills are expected to result in an EPS impact of Rs0.8 per share (2.4% of FY22 EPS). For Ailia, additional impact is expected to arise from late payment surcharge (LPS) which PSO books on cash basis and we believe expectations of a significant payout rest on inflows from LPS only as PSO will look to ease cash flow issues from first clearance with short term borrowings standing at Rs96bn as of March 2021 while receivables from LNG sales continue to pileup, standing at RS90bn as of March 2021 from Rs73bn as of December 2020.
