ECC has approved the second installment of PKR 135bn. To recall, earlier in the year (Jun’21), the Govt. disbursed the first installment of PKR 90bn. This will be followed by the second installment, as per the agreement (60% of outstanding amount).
The payment mechanism agreed between the govt. and IPPs was as follows:
1st Installment: 40% of outstanding amount (breakup: 33.3% Cash, 33.3% SUKUK and 33.3% floating PIBs)
2nd Installment: 60% of outstanding to be paid after six months (breakup: 33.3% Cash, 33.3% SUKUK and 33.3% floating PIBs)
KAPCO will receive the highest amount of PKR 59.4bn (PKR 67.48/share) followed by HUBC which will receive PKR 34.8bn (PKR 26.8/share). PKGP, LPL and KEL will receive PKR 9.8bn, PKR 9.3bn and PKR 3.0bn, respectively.
However, if the IPPs retire their liabilities as per the proportion of payment received, the net cash impact per share for KAPCO will be the highest amongst all – PKR 29.7/share, followed by PKGP (PKR 17.9/share) and LPL (PKR 8.0/share). On the other hand, the liabilities of HUBC and KEL are higher than their receivables, so their net payment position will be negative. For payment details to all IPPs, kindly refer to the table on page 4.
Currently, we have a ‘BUY’ call on KAPCO and HUBC with our target prices of PKR 50.7/share and PKR144.6/share, respectively.
Impact of Payment to IPPs on PSO
Resolution of Circular debt will be a key trigger for PSO as it has to rely on short term borrowings to meet working capital requirement.
We expect PSO to receive 60% payment from HUBC which translates to PKR 12.5bn, against total trade receivables from HUBC of PKR 20.8bn.
Reduction in trade debt amount will improve liquidity position of the company and allow the company to invest in other projects, which will increase the wealth of shareholders.
Currently, we have a ‘BUY’ call on the stock with our target price of PKR 306/share. The stock is trading at an attractive P/E multiple of 3.0x for FY22E.
Courtesy – AHL Research