Karachi, September 09, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has assigned preliminary rating of ‘A-1+’ (A-One Plus) to Kot Addu Power Company Limited’s (KAPCO) proposed Islamic Commercial Paper (ICP) / Short-Term Sukuk (STS) Issue-1 of up to Rs. 5b (inclusive of a green-shoe option of up to Rs. 1b). The company envisages issuance of series of rated, privately placed, ICP/STS issues of upto Rs. 15b (inclusive of Rs. 3b green-shoe option). The short-term rating of ‘A-1+’ denotes highest certainty of timely payment, liquidity factors are excellent and just below risk free Government of Pakistan’s short-term obligations. The proceeds of the issue will be utilized for working capital requirements.
The assigned rating takes into account its strong ownership profile of KAPCO being majority owned by Government of Pakistan (GoP) through its representative Water and Power Development Authority (WAPDA). KAPCO recorded slightly higher revenue during 9MFY20 as the impact of lower energy dispatched was more than offset by tariff indexation to inflation and currency depreciation. Improvement in profitability was mainly led by increased proportion of capacity payments component and lower fuel and power costs.
Liquidity indicators of the company remained intact, conforming to healthy funds from operations generation and sound debt servicing capacity as the debt profile comprised short-term borrowings only which have been mobilized for working capital requirements mainly on account of accumulating receivables from WAPDA.
Some reduction in receivables and short-term borrowings has been noted subsequent to issuance of Pakistan Energy Sukuk (PES) II by government-owned Power Holding Limited, which led to improvement in leverage indicators. The existing Power Purchase Agreement (PPA) is set to expire in June 2021 and its renewal is expected to be without take or pay arrangements and guaranteed return on equity component; this would impact financial profile of the company.
The instrument will be issued in three tranches, with each tentatively amounting to Rs. 5.0b inclusive of green-shoe option of Rs. 1.0b. The tenor of each issue will be six months; ICP/STS Issue-I will be repaid before the expiry of the existing PPA. Repayment structure comprises a bullet payment of face value at the end of the maturity of the respective ICP/STS issuance. Given that the issuance is of short-term tenor and will mainly replace the commercial borrowings, leverage indicators are expected to remain largely around current levels. KAPCO has been assigned entity ratings of ‘AA+/A-1+’ (Double A Plus/A-One Plus).
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/