The Pakistan Credit Rating Agency Limited
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Kanwal Ejaz

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PACRA Maintains Rating of WAPDA | Sukuk | May-17

Rating Type Debt Instrument
Action Maintain Maintain
Long Term AAA AAA
Short Term - -
Outlook Stable Stable
Rating Watch Yes Yes

The Water and Power Development Authority of Pakistan is in the process of the construction of DASU hydro power project (Dasu). Dasu, once completed would become second largest hydel project in Pakistan. Dasu is a run of the river project on Indus River located in Dasu Kohistan, Khyber Pakhtunkhwa about 345 KM from Islamabad. Stage 1 (2,160 MW) is expected to complete by 2023 with cost of USD ~4.247bln. For partial financing of the project, WAPDA is issuing debt instruments worth PKR 88bln (TFCs: 35.2bln, Sukuks: 52.8bln) in multiple tranches. For this purpose in May 2017 first tranche of debt instruments has been issued and WAPDA is planning to issue second tranche in late 2019.
The ratings of PPTFCs (Tranche 1: PKR 10bln, Tranche 2: PKR 4.235bln) and Sukuks (Tranche 1: PKR 15bln, Tranche 2: PKR 6.353bln) reflects an unconditional and irrevocable guarantee by the Government of Pakistan (GoP). The guarantee covers the payment of total outstanding amount of the instruments and related profit component. GoP would pay the entire called amount immediately upon receiving a demand notice from the trustee. Additionally, WHE is maintaining a debt payment account (DPA) under the exclusive lien of the trustee. Within first fifteen days of each month, WHE deposits an amount equal to 1/6th of the upcoming installment in the DPA. The rating apart from a debt payment and guarantee mechanism recognizes strong cash flows of WAPDA Hydro Electric - the core source of repayment. WAPDA also has strategic importance as the major hydroelectric power supplier to the country (18% in overall electricity generation in FY19).
WAPDA's revenues primarily emanate from WAPDA Hydro Electric (WHE) overlooked by the power wing. WHE receives tariff based revenue from CPPA-G against supply of electricity. WAPDA generated 27,196Wh electricity in FY19.
WHE's financial profile draws comfort from strong cashflows. However, it remains dependent on repayment behavior of power purchaser. Continued compliance with the predefined covenants of Debt instruments, including maintenance of DPA would remain critical. The watch captures that the financial statements of the issuer for FY19 are being audited and will be approved in the next month. This will be followed by the process for the approval of financial statements for the ongoing financial year.

About the Entity
The Pakistan Water and Power Development Authority (WAPDA), WHE was established through an act of parliament in February 1958 (WAPDA Act 1958) for development and maintenance of water and power resources. WHE has 19 projects with total hydel generation capacity of 8,348MW.

About the Instrument
WAPDA has issued Sukuks of PKR 15bln in May 17 for a period of 15 years as first tranche. Second tranche of PKR 6.35bln will be issued by end 2019. The instrument shall be redeemed in 20 equal semiannual instalments starting from Nov22. Profit will be paid semiannually in arrears at 6M Kibor + 145bps. Till date WAPDA has made five profit payments on Sukkuks. The profit paid to the Sukuk certificates holders as of Nov-19 is PKR 961mln.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.