January 10, 2024 (MLN): The VIS Credit Rating Company Limited (VIS) has downgraded the entity ratings of Kot Addu Power Company Limited (PSX: KAPCO) at ‘A+’ for long-term and ‘A-1’ for short-term, the latest press release issued by VIS showed.
VIS has placed KAPCO on ‘Rating Watch-Developing’ status pending the issuance of the Final Tariff by NEPRA and the signing of the revised PPA with the Central Power Purchasing Agency (CPPA-G).
The signing of the said agreement is a critical event that may have an impact on the company's business and financial risk profile.
The ratings take into account the ownership profile of the company, with majority shareholding being held by the Government of Pakistan (GoP) through WAPDA.
The rating revision also takes into account the change in the business risk profile of the company as its Power Purchase Agreement (PPA) with the government expired in Oct’22.
KAPCO’s Power Plant is included in NEPRA’s approved Indicative Generation Capacity Expansion Plan (IGCEP) 2022-31 till 2026 for 500 MW Capacity.
KAPCO applied for a Reference Tariff as well as a Provisional Tariff before NEPRA.
In line with IGCEP, NEPRA gave the provisional tariff for 500MW which will be applicable till the determination of the final tariff.
The company accepted the Provisional Tariff with certain reservations which were filed with NEPRA through a review petition.
The public hearing for the Final Tariff was held on October 03, 2023, and the company is expecting the issuance of Final Tariff determination soon.
Accordingly, given the pending renewal of PPA, demand risk has been incorporated in the assigned ratings.
Net sales declined during FY23 on account of significantly lower offtake from the power purchaser. KAPCO has not recorded any net sales during the ongoing year.
Profitability is primarily based on investment income and interest on late payment that declined considerably on a timeline basis.
While trade debts declined in absolute terms, credit risk emanating from these receivables is considered low, given that these are sovereign guaranteed.
The current ratio improved on account of higher inventory and lower trade payables at end-FY23.
The ratings also incorporate sizable liquid assets on KAPCO’s balance sheet, therefore, the net debt of the company is nil, while these liquid assets also generate notable secondary income for the company.
Moreover, with a high dividend payout ratio, the equity base remained range-bound.
The business and financial risk profile of the company has materially changed as it has neither the guaranteed power offtake nor the full capacity available for the interim demand risk-based tariff, therefore, the Power Plant remained non-operational in the ongoing year.
Copyright Mettis Link News
Posted on: 2024-01-10T11:26:20+05:00
