Draft PR
The Pakistan Credit Rating Agency Limited

Rai Umar Zafar

Muhammad Hassan

Applicable Criteria

  • Methodology | Debt Instruments Rating Methodology (Jun 17)
  • Methodology | Criteria Modifiers (Jun 17)
  • Methodology | Independent Power Producers (IPP) (May 17)

Related Research

  • Sector Study | Power Generation (Mar 17)
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PACRA Maintains Rating of the PPTFC (PKR 9,327mln) of WAPDA
 Rating Type Debt Instrument
 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 (30% in overall electricity generation in FY17). WAPDA generated 30,797Gwh electricity in FY17 and it expects to generate additional ~7,000Gwh by completion of new hydel projects in next five years. WAPDA's revenues primarily emanate from WAPDA Hydro Electric (WHE) overlooked by the power wing. WHE receives tariff based revenue from CPPA-G against supply of electricity. On standalone basis, tariff increase during FY17 resulted in improved business margins. Thus overall performance of WHE strengthened further. However, consistent delays by the sole power purchaser have led to constrained cashflow management. For FY18 WAPDA’s tariff petition inclusive of financial servicing of new debt facilities is under approval of NEPRA after which cashflows will further improve.

WHE's financial profile draws comfort from strong cashflows. However, it remains dependent on repayment behavior of power purchaser. Timely approval of tariff allowed by regulator going forward would remain important for cashflows of WHE. 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 development and maintenance of water and power resources. WHE has 19 projects with total hydel generation capacity of 6,902MW.

About the Instrument
WAPDA has issued privately placed Term Finance Certificates in Sep-13 of PKR 9,327mln (outstanding as at end-Sep17: PKR 5,329mln) 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 installments. Profit will be paid semiannually in arrears at 6M Kibor + 175bps with rebate of 75bps if payment is made within 15 days of due date. WHE has paid off the first eight markup installments and six principal installments 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.