Press Release

JCR-VIS Reaffirms Entity Ratings to Kot Addu Power Company Limited

Karachi, May 3, 2012: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed medium to long-term entity rating of Kot Addu Power Company Limited (KAPCO) at ‘AA+’ (Double A Plus) and short-term rating at ‘A-1+’ (A One Plus). The outlook on the medium to long-term rating is ‘Stable’.

KAPCO is the second largest Independent Power Producer (IPP) in the country in terms of power generated and has a consistent history regarding plant availability and thermal efficiency. The company has a competent in-house Operations and Maintenance (O&M) team trained under the guidance of original equipment manufacturers. However, operations risk is relatively higher for KAPCO as compared to other IPPs since it cannot charge liquidated damages on non-performance in the absence of an O&M contractor. The ratings also draw strength from sponsorship of KAPCO jointly held by Government of Pakistan (GoP) through WAPDA and International Power Plc, a company with extensive global power sector experience.

The country’s power sector continues to be adversely impacted by the circular debt crisis with significant losses under various heads including line losses, non-recoveries and differential in cost of generation & tariff. Delays in release of timely payments and inadequate funds to resolve the issue has created liquidity constraints in the power sector while forcing companies to leverage their position. However, comfort can be drawn from the Guarantee issued by the GoP, which ensures payment to KAPCO against receivables from WAPDA. Also given the growing importance of IPPs to the power sector in the absence of any major developments in Hydel and coal generation, GoP’s support to a major source of power generation, like KAPCO, is implicit, in an event of a contingency. Guaranteed capacity purchase price payments for KAPCO is also a major rating factor.

Leverage indicators deteriorated in FY11 and in 1H12 on account of increase in borrowings to finance trade receivables from WAPDA. Subsequent to Dec’11, stress on cash flows has eased off with the receipt of Rs. 60b, which includes a circular debt settlement of Rs. 35b from WAPDA. This amount has been utilized to reduce payables to PSO and retire outstanding borrowings. Resultantly leverage indicators have showcased improvement.

For further information on this rating announcement, please contact Mr. Rashid Zahir at or Mr. Maimoon Rasheed at 042-36610681-84.

Jamal Abbas Zaidi
Deputy CEO

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 not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2012 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited