Press Release

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

Karachi, September 20, 2013: 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). Outlook on the medium to long-term rating is ‘Stable’.

KAPCO is the second largest independent power producer (IPP) in Pakistan in terms of electricity generation with a nameplate capacity of 1,600 MW. With recent sale of ownership by one of the major shareholders, ownership and board structure of the company underwent changes. Government of Pakistan (GoP) continues to be the largest shareholder of the company. Returns guaranteed by the GoP, contingent on a minimum level of electricity generation, remains a key rating factor.

Inter-corporate debt remains an area of concern for the power sector, including KAPCO. Power generation has been adversely affected over the years due to delayed payments from Water & Power Development Authority (WAPDA) and resultant shortage of fuel supply. To tackle the debt crisis, the government has recently made payments to various IPPs and companies in oil and gas sector, including KAPCO. Moreover, recent steps taken by the government that include tariff hike per unit across all consumers will narrow the gap between cost and sale price of electricity and is expected to bode well for the power sector. Further reforms will be required as a sustainable solution to overcome the energy issue.

During 9MFY13, trade debts related to WAPDA decreased on account of periodic payments by the government. Despite increase in borrowings during 9MFY13, KAPCO’s debt leverage improved on account of significant reduction in payables to Pakistan State Oil Company Limited (PSO). Leverage indicators and liquidity are expected to have benefited from the recent payment by the government. While receivables may begin to accumulate again, the pace of accretion is expected to be slower, post recent reforms.

For further information on this rating announcement, please contact Ms. Sobia Maqbool, CFA (Ext: 605) at 021-35311861-70; fax to 021-35311872-73 or Mr. Maimoon Rasheed at 042-36610681-4.

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 2013 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