JCR-VIS reaffirms entity ratings of Kot Addu Power Company Limited

Karachi, November 20, 2015 (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 December 29, 2014.

Ratings assigned to KAPCO take into account its low business risk and leading position in the Independent Power Producer (IPP) sector. KAPCO is the second largest IPP, in terms of electricity generation, with a nameplate capacity of 1600MW. Under the 25 year Power Purchase Agreement (PPA) with Water and Power Development Authority (WAPDA), the company sells electricity to the sole off-taker while payments from WAPDA are guaranteed by Government of Pakistan (GoP).

Delays in payments are managed partly through offsetting receivables with payables and borrowings under an arrangement facilitated by GoP. Going forward, the company plans to setup a 660MW coal based power plant in Punjab; materialization of the same may take some time.

Revenues during FY15 declined attributable to lower fuel cost component of Energy Purchase Price as oil prices have continued to remain depressed. However, gross margins improved on account of increased thermal efficiency and lower repair and overhaul cost despite a fall in revenue as oil prices in tariff are a pass through item and as such do not affect the margins. Improved gross margins yield better profitability during the outgoing year.

Falling oil prices has reduced the working capital requirement of the company and in turn trade debts. However, cash flows remained subdued on account of outstanding level of trade debts yet were comfortable for debt servicing.

For more information, contact:
Ms. Sobia Maqbool
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