Fitch upgrades Pakistan WAPDA to 'CCC+' on sovereign upgrade

August 06, 2024 (MLN): Fitch Ratings has upgraded Pakistan Water and Power Development Authority's (WAPDA) Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC+', from 'CCC'.

Fitch typically does not assign outlooks to issuers with a rating of 'CCC+' or below due to the high volatility of these ratings, said a press release issued on Tuesday.

The entity's IDR reflects Fitch's rating definition of a low margin for safety, given its reliance on government funding.

The upgrade follows the upgrade of the Pakistan sovereign on July 29, 2024, as WAPDA's ratings are equalised with those of the sovereign and are sensitive to any rating action on the sovereign.

Derivation Summary

The rating agency said that it believes extraordinary support from Pakistan to WAPDA would be 'Virtually Certain' in case of need, reflecting a maximum support score of 60 under its Government-Related Entities (GRE) Rating Criteria, even though the government's capacity to support the entity is likely to be impaired amid its high funding requirements as well as the government's weak credit quality.

Hence, "we derive the entity's ratings based on our rating definitions in addition to the support factors under our GRE criteria," it said.

The senior unsecured bond rating is equalised with the entity's IDR.

Rating Sensitives

The rating agency said that factors that could, individually or collectively, lead to positive rating action/upgrade:

• An upgrade of the sovereign may trigger positive rating action on WAPDA.
• Factors that could, individually or collectively, lead to negative rating action/downgrade:
• A sovereign downgrade or a lower government responsibility or incentive to provide support may lead to negative rating action.
• Rating action on WAPDA's IDR would lead to similar rating action on its senior unsecured notes.

Issuer Profile

WAPDA is a hydroelectric power generation company that is wholly owned by the state. It was set up to integrate the development of Pakistan's water and power resources.

It made up 88% of the nation's hydroelectric power capacity and 20% of installed capacity in 2023.

Public Ratings with Credit Linkage to other ratings

WAPDA's ratings are linked to those of the Pakistan sovereign.

ESG Considerations

Fitch does not provide ESG relevance scores for WAPDA, as the ratings and ESG profile are derived from the parent, Pakistan. ESG relevance scores and commentary for Pakistan can be found at Pakistan

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