The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Maintains Rating of WAPDA | PPTFC | May-17

Rating Type Debt Instrument
(02-Feb-21 )
(24-Jun-20 )
Action Maintain Maintain
Long Term AAA AAA
Short Term - -
Outlook Stable Stable
Rating Watch Yes Yes

The Water and Power Development Authority of Pakistan (WAPDA) is in the process of the construction of the DASU hydropower project (Dasu). Dasu, once completed would become the second-largest hydel project in Pakistan. Dasu stage 1 (2,160 MW) is expected to complete by 2023 with a cost of PKR 510.980bln (USD ~3.179bln). 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 a second tranche in early 2021.
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 the total outstanding amount of the instruments and related profit components. GoP would pay the entire called amount immediately upon receiving a demand notice from the trustee. Additionally, WAPDA is maintaining a debt payment account (DPA) under the exclusive lien of the trustee. Within the first fifteen days of each month, WAPDA 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 WAPDA's strategic importance as the major hydroelectric power supplier to the country. WAPDA generated 32,295GWh electricity in FY20. WAPDA expects to generate an additional ~8,070MW by the completion of new hydel projects in the next four years.
WAPDA's financial profile draws comfort from strong cash flows. However, it remains dependent on the repayment behavior of the power purchaser. Continued compliance with the predefined covenants of PPTFC, including maintenance of DPA would remain critical. The watch captures that the financial statements of the issuer for FY20 are being audited and will be approved in the coming 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) hydro electric (WHE), was established through an act of parliament in February 1958 (WAPDA Act 1958) for the development and maintenance of water and power resources. WHE has 21 projects with a total hydel generation capacity of 8,420MW.

About the Instrument
WAPDA has issued privately placed Term Finance Certificates of PKR 10bln in May-17 as the first tranche. The second tranche of PKR 4.235bln will be issued in early 2021. The instrument, having a tenor of 15 years, shall be redeemed in 20 equal semi-annual installments starting from May-23. Profit will be paid semiannually in arrears at 6M Kibor + 145bps. To date, WAPDA has made seven profit payments on TFC and the profit paid to the TFC certificate holders as of Nov-20 is PKR 474mln.

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.