Press Release

JCR-VIS Reaffirms Entity Ratings of KotAddu Power Company Limited

Karachi, November 28, 2016: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of KotAddu Power Company Limited (KAPCO) at ‘AA+/A-1+’ (Double A Plus/A-One Plus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on November 20, 2015.

Ratings assigned to KAPCO take into account its low business risk emanating from its strategic importance in the power sector given its size, guaranteed power off take upon meeting certain performance benchmark and indexation of tariff. The company continues to face liquidity management challenges as a result of delays in payments by WAPDA which is managed through utilizing short-term borrowing facilities and by availing credit period from fuel suppliers; overall impact on company’s profitability remained positive.

Revenues of the company declined in FY16 as a result of lower fuel prices, however gross margin improved on account of operational efficiencies emanating from higher reliance on cheaper fuel(gas) for electricity generation. Sustained thermal efficiency also reflected positively on gross margin. Funds from Operations have improved owing to lower finance cost. Debt service coverage ratio reflects strong capacity of the company to meet timely debt obligations.

As part of its expansion plans, KAPCO intends to setup a 660MW coal based power plant. The total cost of the project is estimated at USD 950 million and will be funded through debt to equity mix of 75:25. Funding for the said project may increase the overall debt levels of KAPCO; comfort is drawn from low leveraged balance sheet and strong cash flows.

Government of Pakistan intends to divest its residual shareholding in KAPCO i.e. 40.3% shareholding of WAPDA; developments on this transaction will be monitored by JCR-VIS.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 (Ext: 208) or Mr. Waqas Munir, FRM at 042-35723411-13 (Ext: 8010).


Mohammed Khalid Ali
Advisor

Applicable Rating Criterion: Industrial Corporate (May 2016)

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 November 28, 2016 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.