The second instalment of PKR 135 billion has been approved by the ECC. To recall, the government disbursed the first tranche of PKR 90 billion earlier this year (June 21). As per the arrangement, the second instalment will be paid after that (60 percent of outstanding amount).
The government and IPPs agreed on the following payment mechanism:
40 percent of the outstanding balance is due in the first instalment (breakup: 33.3 percent Cash, 33.3 percent SUKUK and 33.3 percent floating PIBs)
Second Installment: After six months, 60 percent of the outstanding balance must be paid (breakup: 33.3 percent Cash, 33.3 percent SUKUK and 33.3 percent floating PIBs)
KAPCO would receive the most money, PKR 59.4 billion (PKR 67.48 per share), followed by HUBC with PKR 34.8 billion (PKR 26.8 per share). PKGP, LPL, and KEL will each earn PKR 9.8 billion, PKR 9.3 billion, and PKR 3.0 billion.
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.