Shares of Nishat Power Limited are up for sale. Being the first public offering in eight months in a market that has been uninspiring for so long is a tell tale sign that the economy is largely at a standstill - much due to energy shortfall.
So what could be a better timing for a firm that plans to make and sell energy in a country that is starving for power? Chances are investors will run for it, and if small, cash strapped ones dont, at least the smart money will.
Although trial production of the firms 200 MW plant near Kasur has already been started, operations are expected to commence by the end of next month. The project has an estimated cost of $204 million (Rs 17 billion) with debt to equity ratio of 80:20.
It is pertinent to note here, that at the time of submitting its petition to NEPRA in 2007, the project was planned to be financed at a debt-equity ratio of 75:25 with the project cost being the same ($204 million) while PPIB had guaranteed its permission as early as December 2005 for the installation of fast track IPP in 18 months.
Civil work of the project, however, did not begin until March 2008 and this delay in starting the project cost the firm about Rs 4.7 billion owing to exchange rate depreciation. NPL has entered in a 25-year Power Purchase Agreement with Wapda at US cents 12.12/kWh, which is slightly higher than the average IPP tariffs of US cents 10.58/kwh.
While the tariff part of the deal is attractive, the agreement with Wapda comes with a fair share of risk, considering the firm is hampered by circular debt. And if the problem continues in the longer run, it will have its repercussions on NPL, as it would have to bear high interest costs in case Wapda delays its payments.
But this should not be a great cause of concern as it is owned by Nishat Group of Companies -- one of the biggest and most diversified business groups in South Asia -- the project backing is very strong. The group has a commendable history of successful business transactions in the recent past, such as the sale of MCBs stake to Malaysias May Bank. And given the groups proactive approach proven time and time again, the power project looks like the right deal, at the moment.
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KEY TRANSACTION DETAILS: NISHAT POWER
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Transaction type: Offer for sale
Offer quantity 22.5 million ordinary shares
Offer price Rs 10 per share
Advisor & arranger AKD Securities Pvt Ltd
Subscription dates August 28 to 31, 2009
Main equity sponsors Nishat Mills (63%), Allied Bank (8%)
National Bank (8%)
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