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The Pakistan Credit Rating Agency Limited

Date
30-Dec-2016
Analysts
Aisha Khalid
aisha@pacra.com

+92-42-35869504
www.pacra.com
Applicable Criteria

  • Rating Modifiers | Outlook and Rating Watch (Jun 16) [View]
  • Methodology | Independent Power Producers (IPP) (Jun 16) [View]

Related Research

  • Sector Study | Independent Power Producers (Feb 16) [View]
Disclaimer
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PACRA Maintains Rating of GoP Guaranteed Term Finance Certificates of WAPDA
 Rating Type Debt Instrument
Current
(30-Dec-2016)
Previous
(09-Jan-2016)
 Action Maintain Maintain
 Long Term AAA AAA
 Short Term - -
 Outlook Stable Stable
 Rating Watch - -

The rating of PPTFCs reflects an unconditional and irrevocable guarantee by the Government of Pakistan (GoP). The guarantee covers the payment of total outstanding amount of the PPTFCs and related profit component. GoP would pay the entire called amount immediately upon receiving a demand notice from the trustee. The rating apart from a debt payment and guarantee mechanism recognizes WAPDA's strategic importance as the major hydroelectric power supplier to the country. WAPDA's revenues primarily emanate from WAPDA Hydro Electric (WHE) overlooked by the power wing. WHE receives tariff based revenue from NTDC/CPPA against supply of electricity.

WAPDA’s annual accounts for FY16 are in finalisation stage. However, the key figures shared by the management signifies healthy liquidity and sound debt and interest coverages (calculated on the basis of EBITDA). Improved repayment behaviour of the power purchaser has resulted in significant reduction in receivables. This has provided breather in receivable days (FY16: 130days; FY15: 186days). WHE's financial profile draws comfort from strong cashflows. However, it remains dependent on repayment behaviour of power purchaser.

Continued compliance with the predefined covenants of PPTFC, including maintenance of DPA would remain critical.
About the Entity
The Pakistan Water and Power Development Authority (WAPDA), WHE was established through an act of parliament in February 1958 (WAPDA act 1958) for integrated and rapid development and maintenance of water and power resources of the country. WHE has 19 projects with total hydel generation capacity of 6,902MW. WHE’s key source of revenue is tariff charged to NTDC/ CPPA (CPPA) for sale of electricity. The tariff is determined annually, after the authority files a petition for the revision in tariff to NEPRA. The tariff comprises all cost components - Power generation costs, operations and maintenance costs, and depreciation – usually pass-through, except for the disallowed portion of these costs.

About the Instrument
WAPDA has issued privately placed Term Finance Certificates in Sep-13 of PKR 9,327mln (outstanding as at end-Sep16: PKR 6,662mln) for the period of 8 years. The repayment has to be made through cashflows of WHE. The instrument shall be redeemed in 14 equal semiannual instalments. Profit will be paid semiannually in arrears at 6M Kibor + 175bps with rebate of 75bps if payment is made within 15 days after due date. WHE has repaid first six markup instalments and four principal instalments of the PPTFC in a timely manner. WHE has availed early payment rebate on all instances.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.
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