Islamabad, Aug 29: The Baseline Credit Assessment (BCA) has been increased to caa2 from caa3, and the Corporate Family Rating (CFR) of Pakistan Water and Power Development Authority (WAPDA) has been upgraded from Caa3 to Caa2.
According to the Rating Agency, the rating’s outlook was changed from stable to positive. This rating action comes after the Pakistani government’s (Caa2 positive) rating action from Moody’s Ratings.
Given their strong credit relationship, the upgrade of WAPDA’s CFR and outlook change is consistent with the action taken on the rating of the Pakistani government. According to Spencer Ng, a vice president and senior credit officer at Moody’s Ratings, “this is a reflection of the government’s complete ownership and direct supervision of the company and WAPDA’s purely domestic-based operations.”
According to Moody’s Joint Default Analysis (JDA) for government-related issuers, “WAPDA’s Caa2 CFR incorporates its caa2 BCA and our assessment of a high likelihood of extraordinary support from, and the company’s very high dependence on, the Government of Pakistan when needed,” the Agency continued.
WAPDA’s caa2 BCA is a reflection of its exposure to ongoing operating difficulties at its 969 MW Neelum Jhelum power station (NJHP) as well as its negative financial profile as a result of its lengthy receivables cycle, substantial hydropower capacity development plan, and postponed tariff decisions. The BCA also takes into account WAPDA’s status as the leading provider of hydropower in Pakistan’s electricity market and the ongoing financial assistance it gets from the government.
Due to a complex regulatory environment and its incapacity to swiftly and adequately recover costs, the company has a negative financial profile, which delays tariff decisions and lengthens the receivables cycle. For the next 12 to 18 months, we predict that WAPDA’s finances from operations (FFO) will remain extremely low.
A long-term recovery will probably be contingent upon the regulator authorizing an increase in the company’s tariffs and the restart of NJHP’s activities. It further stated that the combined financials of WAPDA’s power division and Neelum Jhelum form the basis of our evaluation of WAPDA’s financial measures.
For similar reasons, WAPDA’s significant current borrowings and capital expenditures will keep its liquidity fragile. Due in part to the delays in recovering unpaid receivables from its government-owned off-taker, the company failed to repay some government loans in accordance with the repayment plan that was established. We anticipate that things will stay this way.
