Press Release

VIS Maintains Ratings of KotAddu Power Company Limited

Karachi, December 14, 2020: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of KotAddu Power Company Limited (KAPCO) at ‘AA+/A-1+’ (Double A Plus/A-One Plus). Outlook on the assigned ratings have been revised from ‘Stable’ to ‘Rating Watch-Developing’. The medium to long-term rating of ‘AA+’ denotes high credit quality coupled with strong protection factors. Moreover, risk factors may vary slightly with possible changes in the economy. 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 previous rating action was announced on December 2, 2019.

Revision in rating outlook is on account of PPA expiry in June’2021 and depends on the company’s negotiation regarding operational terms and conditions with the government. 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). The ratings draw strength from the company’s strong business profile with demand risk mitigated under Power Purchase Agreement (PPA) signed with WAPDA. The ratings also draw comfort from government guaranteed cash flow stream under the agreement upon meeting certain performance benchmarks. Moreover, upholding operational performance in line with agreed performance levels would remain a key rating driver. Ratings also take into account the impact of recent MOU signed with the GoP, impact of which is considered minimal given PPA expiring in seven months.

Assessment of financial risk profile incorporates healthy profitability and liquidity metrics and sound capitalization profile of the company. Despite decline in sales revenue, profitability profile of the company improved during FY20 and 1QFY21 due to declining fuel prices, higher efficiency with the plant running on RLNG, and interest income on late payments by WAPDA. 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. Consequently, capitalization profile of the company is considered sound as evident from healthy internal capital generation and long-term debt free balance sheet. 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 is expected to impact the financial profile of the company.

For further information on this rating announcement, please contact Ms. Asfia Aziz and/or the undersigned (Ext. 306) at 021-35311861-66 or email at

Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Corporate (May, 2019)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

VIS Credit Rating Company Limited