Govt to issues Rs 137b TFC to overcome power crisis

According to Top Line research report, in another attempt to ease the liquidity problems of the energy sector, the government has decided to issue TFC (Term Finance Certificate) worth Rs 137 billion with industry grapevine suggesting the transaction is likely to be exhausted within couple of days. The transaction will clean the balance sheet (reduce short-term borrowing) of the energy sector companies by Rs 109 billion, while another Rs28 billion would be fresh injection in the system. For the banks it would slightly reduce the NPLs (Non-performing Loans) in short term and may lead to one time positive impact on earnings.Overall, the transaction aims to revitalised the lending capability of the banking sector to the energy chain. However, we re-iterate that the transaction is only a short-term remedy for the circular debt with full and final solution of the problems lies in the complete revamp of the energy sector that include removal of power subsidies.The arrangement suggests that, PSO is expected to receive a gross amount of Rs 40billion, primarily from Hubco and Kapco, while it would be paying Rs13bn to refinery sector. Thus, residual amount (net) would be Rs27bn, which would be utilized to settle its short-term borrowing. We expect the transaction to augment company’s FY12 earnings by Rs 7 per share.Amongst the major IPPs i.e. Hubco and Kapco, are expected to receive a net amount of Rs 20 billion (gross amount Rs 39 billion) and Rs 15 billion (gross amount Rs 35 billion), respectively, which would be primarily used to settle their short-term obligation to the banking sector. The transaction will improve liquidity position of both the companies; however, there will be no major impact on earnings since lower financial charges would be offset by reduction in interest earned on overdue receivables.Similarly, small listed IPPs like NPL and NCPL the transaction would reduce their short-term borrowing by Rs 2billion and Rs 4 billion, thus having a positive impact on company’s balance sheet. This will allow smooth operation of the plant ensuring their returns.