Pakistan Strategy: Clearance could bring power chain back from the brink
- PTI-led government has decided to take decisive measures to finance the receivables-payables gap in the energy chain by financing PkR200bn (inclusive of green shoe of PkR100bn), filtering through to improve liquidity for IPPs and OMCs in the listed space.
- For IPPs, the clearance is a penance, where last reported circular debt figures show PkR566bn in arrears (PkR324/194bn added in total/inter-corporate arrears during FY18), a meagre PkR100-200bn can only absolve one third of overdue and dated receivables, where HUBC can continue payouts at a crucial stage in its expansion plans and KAPCO can curtail borrowing.
- PSO is likely to receive PkR55-60bn filtering through its books, keeping the state OMC less reliant on ST foreign borrowing (resulting in declining financial charges), while cutting back on some portion of other income received through late payments (likely 20-22%YoY seen one quarter after clearance is made).
- This clearance by no means signals the end of circular debt as just the increase in units consumed and increased consumer tariff could translate into further accretion of PkR230-250bn (ceteris paribus on collection shortfall and T&D losses) in FY19, where continued weakness in oil prices (FO price down 2%MoM but up 16%FYTD) could contain accretion.
- We retain our liking for PSO (TP of PkR356/sh) benefitting from RLNG sales and any major CAPEX plans hastened by payment clearances, while HUBC (TP of PkR142.7/sh) augments its earnings from expansion project completion over the medium term.
Pakistan State Oil is a petroleum group based in Pakistan. Co.'s principal activities are the procurement, storage and marketing of petroleum and related products. Co. also blends and markets various kinds of lubricating oils.
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