In the midst of a financing crisis, solar companies are offered a door to the PSX - Business & Finance

KARACHI: In addition to uncertainty surrounding the government’s intention to reduce repurchase rates, solar adoption faces additional financial challenges, with banks now reluctant to provide liquidity at concessional rates .

Haneea Isaad, energy finance specialist at the Institute of Energy Economics and Financial Analysis (IEEFA), highlighted the challenges facing financing solar projects: lack of concessional capital, high interest rates , lack of support programs in Pakistan and political obstacles hindering access to national markets. markets.

“Developers are struggling without certainty over sales, required by auctions for grid connection approval, leaving solar projects in limbo,” she said. Business recorder.

However, amid these setbacks, the Pakistan Stock Exchange (PSX) is looking to step up its efforts.

Farrukh H. Khan, CEO and Managing Director of PSX, said the exchange can provide listings for solar companies and promote green initiatives as a responsible organization in the country.

“The PSX can help solar energy companies raise capital for expansion and innovation in renewable energy technologies,” he said.

“Companies can offer green bonds on solar energy projects, providing opportunities to finance renewable energy projects and improve sustainability in the country. »

PSX is also working on an ESG Sustainability Index which will be launched in the future.

“Solar companies can be assessed for inclusion in the ESG Sustainability Index based on the nature of their business and other parameters, leading to increased visibility and investments for listed solar companies,” a he added.

Khan noted that with emerging trends in sustainability and ESG rapidly taking root in the global investment landscape, investors are seeking responsible investments in sustainable products and businesses.

“Public listed companies will be ready to embark on their ESG journey as a listed company. PSX encourages and supports companies, including green companies, to report on their sustainability and adhere to ESG standards,” he said.

“Overall, solar companies have the opportunity to benefit from a stock market listing. They can access capital for growth and attract local and international investor interest in sustainable or green businesses. For small and medium-sized businesses and new businesses/projects, the Growth Enterprise Market (GEM) Board is an ideal platform for listing. Solar companies belonging to the SME sector may find the GEM Board suitable for listing,” he said.

Advisors and consultants play a crucial role in evaluating companies in terms of listing eligibility, financial position, valuation and capital raising potential.

As PSX encourages companies, including those focused on solar energy and green products, to list on the Exchange’s Main Board and GEM Board, advisors are the first point of contact companies can consult on registration prospects.

“PSX, as a source for businesses to raise capital for growth and expansion, is mindful of investor protection and rights. Therefore, substantial due diligence is conducted to ensure that the listed company provides the required stability and growth potential,” Khan added.

Raeda Latif, director of marketing and business development, said PSX can make efforts to encourage environmentally friendly companies to list on the stock exchange.

“It is important to note that PSX, as a front-line regulator, cannot grant special concessions or incentives to any particular sector or company. However, to facilitate SME and greenfield projects, PSX has the GEM Board, where green businesses may find it easier to register compared to the Main Board, depending on meeting the eligibility criteria,” a- she declared.

Latif said the true assessment of a company’s potential is done by consultants and advisors, while PSX ensures investor protection by thoroughly studying the company’s eligibility, valuation and potential.

Although PSX cannot comment on the government’s plans to support IPOs of solar and green companies, it will support the government’s efforts for the expansion and growth of these companies.

“Given Pakistan’s geographical location, it is one of the most vulnerable countries to climate change, so any government efforts to encourage green and solar businesses will be fully supported by PSX.

Adopting solar energy will help Pakistan reduce its carbon footprint and combat air pollution, a serious problem in many of its cities. Pakistan’s geographical location is advantageous for solar technologies, with a solar energy potential of 2.9 million MW through year-round sunshine.

The global cost of solar technology has also fallen, making renewable energy sources more economically viable.

The Pakistani government has set a target of acquiring 30% of the country’s electricity from renewable sources by 2030. To achieve these targets, the government intends to establish power generation facilities solar through the Alternative Energy Development Board.

Investors around the world are looking for companies with strong environmental, social and governance (ESG) practices, transparent reporting and clear strategies to mitigate climate change risks. Various funds, such as green bonds, are aimed at investors who prioritize sustainability and support companies adhering to ESG principles.

The potential to attract significant investment in solar companies is considerable, given the growing global focus on the transition to clean energy sources.

“The PSX can build on this momentum by introducing green bonds for solar energy infrastructure projects, reflecting their scalability, cost-effectiveness and potential for innovation and technological advancement,” Latif said.

Latif emphasized that listing on PSX can improve the visibility and credibility of a solar company.

“It provides a platform for the company to showcase its achievements, business strategy and commitment to sustainability to a wider audience, including investors, customers and stakeholders. This increased visibility can attract more attention from potential investors and partners, creating new opportunities for growth and expansion.

Listing on PSX provides liquidity to shareholders, allowing them to buy and sell shares more easily. This liquidity is attractive for investors looking for an exit strategy or diversifying their investment portfolio.

Being publicly traded also provides a transparent valuation of the company, based on market demand for its shares. This valuation can serve as a benchmark for the company’s performance and growth prospects, thereby helping to attract investors and partners. It also allows the company to benchmark its performance against its industry peers and track its progress over time.

Publicly traded companies also have better access to talent and partnerships through increased visibility and credibility. This can be particularly beneficial for a solar energy company looking to attract qualified employees, strategic partners and suppliers to support its growth and innovation initiatives. Additionally, being listed on PSX can open the door to potential collaboration opportunities with other companies in the renewable energy sector.

Several successful IPOs of solar companies have taken place in global financial markets. One example is Nextracker, which raised 20% more capital than expected in its NASDAQ IPO in February 2023. Another example is SolaX Power, listed on the STAR market of the Shanghai Stock Exchange in January 2024. SolarBank Corporation also completed a successful IPO and got listed on the Canadian Securities Exchange in March 2023.

“These and other solar companies across the world have had successful IPOs, which Pakistan’s solar companies can also emulate for their own benefit and that of the economy,” Latif said.

The solar power market in Pakistan is estimated to grow at a compound annual growth rate (CAGR) of 49.68%, from 1.30 gigawatts in 2023 to 9.77 gigawatts in 2028.

Umair Zavary, director of the Netline Group of Companies, which includes a solar company, said he was optimistic about an IPO as soon as market conditions were favorable.

He mentioned that although they initially anticipated an IPO in 2024, financial consultants indicated that current market conditions, characterized by high interest rates, are not conducive. Therefore, the company could continue its listing in 2025.

“Our next step toward localization depends on a public list,” Zavary said.

In December 2022, the company announced that it had raised Series A funding worth $4.5 million for Netline, a family-owned business in the energy and power sector in Pakistan. Netline provides electrical and energy solutions in Pakistan and has offices in the United Arab Emirates and the United States.

The company outlined its plans to manufacture localized solar panels in Pakistan by 2027. In 2022, it revealed that the first phase of investment, amounting to $3.5 million, is expected to be completed in the third and fourth quarters of 2023. An additional $5 million was planned to be raised through an initial public offering (IPO) in 2024, but this has now been postponed for a year.

Zavary pointed out that Pakistan has an abundant reserve of quartz, the raw material for solar panels.

Quartz glass is crucial in many aspects of photovoltaic (PV) cell manufacturing, including light sources, reaction chambers, and tools used in the production of solar cells, thin films, and silicon wafers.

However, the implementation of these plans will depend on government policies.