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

Karachi, December 18, 2017 (PPI-OT):JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Kot Addu Power Company Limited (KAPCO) at ‘AA+/A-1+’ (Double A Plus/A-One Plus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on November 24, 2016. The ratings take into account KAPCO’s strong business profile emanating from its strategic importance in local power sector. While re-emergence of sizeable inter-corporate debt poses challenge to financial profile, comfort can be drawn from the company’s ability to partly finance its receivables from payables.

The company has a distinct advantage of having sovereign as the major shareholder, power purchaser and supplier. The ratings also incorporate government guaranteed cash flow stream under the agreement upon meeting certain performance benchmarks. Net sales of the company increased in FY17 on account of higher power dispatch. Gross margins however decreased mainly on account of two major overhauls and relatively lower thermal efficiency during the year. With higher net income, Funds from Operations (FFO) of the company increased in FY17.

Debt service coverage ratio reflects strong capacity of the company to meet timely debt obligations. The company has financed increasing level of receivables with the combination short-term debt and trade payables. Resultantly, gearing and debt leverage stood higher by end-FY17. The company’s plan to establish a coal based power plant is not certain as the government has changed its policy with respect to construction of new power projects on imported fuel. Keeping in view the expiry of its Power Purchase Agreement in 2021, KAPCO is considering various investment options to establish a stable income stream, going forward.

For more information, contact:
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk

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