Press Release

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

Karachi, December 29, 2014: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the 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’. The previous rating action was announced on September 20, 2013.

KAPCO is the largest Independent Power Plant (IPP) operating in Pakistan in terms of installed capacity of 1600MW and second largest in terms of generation. Government of Pakistan (GoP) remains the largest shareholder of the company. The company has a 25 year ‘take or pay’ power purchase agreement (PPA) with Water and Power Development Authority (WAPDA). GoP guarantee on payments from WAPDA remains a key rating factor in addition to the shareholding structure of the institution. The company is conducting a feasibility study on setting up a 660MW coal based power plant in Punjab; materialization of the same may take some time.

A sizable gap between billing and recovery of electricity has led to accumulation of inter-corporate debt in the power sector. Meanwhile, cost of generation in Pakistan has remained high owing to an expensive fuel mix with oil & gas contributing 64% of the total electricity generated and high transmission and distribution losses. As a short-term solution, GoP’s bailout package on reducing inter-corporate debt around the end of Jun’13, boded well for the power sector. This also had a positive impact on KAPCO as trade debts declined considerably. Trade debts have however increased again during FY14 and onwards. While the company has been able to retire most of its long-term borrowings over the years, it has been utilizing short-term credit lines to support its working capital requirements with the level of utilization being contingent on payments from WAPDA. The working capital requirements of the company are expected to reduce considerably on the back of recent decline in international oil prices. While presently the company has adequate cushion available to finance its working capital needs through credit lines, recovery of outstanding dues is considered important to improve its liquidity profile.

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

Jamal Abbas Zaidi
Deputy CEO

Applicable Rating Criteria: Industrial Corporate (October 2003)

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 2014 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