Press Release

VIS Maintains Ratings of Kot Addu Power Company Limited

Karachi, December 10, 2021: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Kot Addu Power Company Limited (KAPCO or ‘the Company’) at ‘AA+/A-1+’ (Double A Plus/A-One Plus). Ratings continue to remain on ‘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 14, 2020.

The ratings remain on ‘Rating Watch-Developing’ on account of PPA expiry in October 2022, with future revenue stream being dependent on the Company’s negotiation regarding operational terms and conditions with Government of Pakistan (GoP). The assigned rating takes into account KAPCO’s ownership profile, with majority shareholding vested with GoP, through its representative Central Power Purchasing Agency Guarantee Limited (CPPA-G). The ratings draw strength from the Company’s strong business profile with demand risk mitigated under Power Purchase Agreement (PPA) signed with CPPA-G. The ratings also draw comfort from GoP 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.

The change in business risk profile has been noted, given sizable revenue adjustment in FY21 and lower profitability margins in Q1’FY22. However, given release of Rs. 152b by CPPA-G, during June-November 2021, the Company’s net debt has essentially nullified and accordingly the resultant improvement in financial risk metrics has been factored into the assigned ratings. The Company’s future revenue streams (post October 2022), greatly depends on its negotiation with GoP. Although, the same is likely to be concluded at lower rates, we expect a high likelihood of PPA renewal given KAPCO’s significance to the Power Purchaser due to its certain distinct capabilities such as being a multi-fuel power plant, having a black start facility, providing an extensive fuel storage facility and its contribution to the national power grid; KAPCO’s strategic location in mid of the country and being a major feeding source for distribution companies of central and lower Punjab; and remaining useful life of the plant being at least 10 years as per the life assessment study carried out by an independent foreign consultant as of end-FY21.

For further information on this rating announcement, please contact Mr. Arsal Ayub, CFA and/or the undersigned (Ext. 306) at 021-35311861-66 or email at info@vis.com.pk .



Faryal Ahmad Faheem
Deputy CEO

Applicable rating criterion: Corporate Rating Methodology - August, 2021
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

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 2021 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .