The Pakistan Credit Rating Agency Limited
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Timnat Thomas

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PACRA Assigns Preliminary Rating to WAPDA Dasu TFC-B

Rating Type Debt Instrument
(29-Jan-21 )
Action Preliminary
Long Term AAA
Short Term -
Outlook Stable
Rating Watch Yes

The Water and Power Development Authority of Pakistan (WAPDA) is in the process of issuing the second tranche of PPTFC worth PKR 4.235bln. This is part of Series B, while Series A is already issued and rated. WAPDA intends to utilize this amount to partially finance the construction of the DASU hydropower project (Dasu). Dasu, once completed would become the second-largest hydel project in Pakistan. Dasu is a run of the river project on the Indus River located in Dasu Kohistan, Khyber Pakhtunkhwa about 350 KM from Islamabad. The project was started in 2017 and expected to be completed in Feb'2023. Out of the revised total land required (5,740 Acres) for the project 2,113 Acres have been acquired.
The preliminary rating of the TFC reflects these facts and an unconditional and irrevocable guarantee by the Government of Pakistan (GoP). The guarantee is covering the payment of the total outstanding amount of the TFC and related profit component. GoP would pay the entire called amount immediately upon receiving a demand notice from the trustee. Additionally, WAPDA shall maintain a debt payment account (DPA) under the exclusive lien of the trustee. Within the first fifteen days of each month, WAPDA shall deposit an amount equal to 1/6th of the upcoming installment in the DPA. The rating apart from a debt payment and guarantee mechanism recognize 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 repayment behavior of 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 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. WAPDA has 19 projects with total hydel generation capacity of 8,420MW.

About the Instrument
WAPDA is to issue second tranche of the Series B TFC issue on January, 2021 of PKR 4.235bln for the period of 15 years. The instrument shall be redeemed in 20 equal semiannual installments. Profit will be paid semiannually in arrears at 6M Kibor + 1.45%. The instrument is fully secured by un-conditional & irrevocable first demand guarantee covering principal and profit from the Ministry of Finance, GoP and Exclusive lien over debt payment account for the benefit of investors.

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.