The Pakistan Credit Rating Agency Limited
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Timnat Thomas

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PACRA Assigns Initial Rating to WAPDA Dasu TFC-B - PKR 4,235.3 Million

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

The Water and Power Development Authority of Pakistan (WAPDA) has issued the second tranche of TFC. 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 river project on the Indus River located in Dasu Kohistan, Khyber Pakhtunkhwa about 350 KM from Islamabad. The project started in 2017 and is expected to be completed in Apr'26. Out of the revised total land required (5,051 Acres) for the project 4,244 Acres have been acquired.
The assigned rating of TFC incorporates 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 commencing from the Musharaka Contribution Date (as defined in the Musharaka Agreement dated March 29, 2017), WAPDA shall deposit an amount equal to 1/6th of the upcoming instalment 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 behaviour of the power purchaser. Continued compliance with the predefined covenants of Sukuks, including maintenance of DPA would remain critical. The watch has been removed since the audited financial statements of the issuer for FY20 are now obtained along with the auditor's report.

About the Entity
The Pakistan Water and Power Development Authority (WAPDA), was established through an act of parliament in February 1958 (WAPDA Act 1958) for the development and maintenance of water and power resources. WAPDA has 22 projects with a total hydel generation capacity of 9,359MW.

About the Instrument
The Pakistan Water and Power Development Authority (WAPDA) has issued a rated, secured, privately placed Term Finance Certificates ("TFC") of PKR 4,235.3mln in Jul'21 to partially finance stage-1 of Dasu Hydropower Project, a 2,160MW run-of-river project. The TFC has a tenor of 11 years door to door inclusive of Grace Period of 1 year. The profit will be paid semi-annually in arrears at the rate of 6M Kibor+1.45% p.a calculated on a 365 days basis on the outstanding principal amount. The principal will be paid in twenty equal semi-annual instalments which will commence from Nov'22 amounting to PKR 211.77mln each. The TFC is fully secured by an unconditional & 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. There is also a call option attached to the TFC exercisable only after the expiry of the Grace Period, subject to a 30 day's prior written irrevocable notice to the Facility Agent.

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.