VIS maintains entity rating of Kot Addu Power Company

January 24, 2024 (MLN): VIS Credit Rating Company Limited (VIS) maintains the entity ratings of Kot Addu Power Company Limited (PSX: KAPCO) at A+/A1, a latest press release issued by VIS showed.

Medium to long term rating of “A+” indicates good credit quality; protection factors are adequate.

Risk factors may vary with possible changes in the economy.

Short-term rating of 'A1' strong likelihood of timely repayment of short-term obligations with excellent liquidity factors.

Rating Watch has been removed and the Outlook on the assigned ratings is Stable.

Previous ratings action was announced on June 08, 2024.

KAPCO was incorporated on April 25, 1996, as a public limited company under the Companies Ordinance, 1984 (now Companies Act, 2017) and was listed on the Pakistan Stock Exchange Limited (PSX) on April 18, 2005.

The Company operates a multi-fuel (gas / RLNG, furnace oil and high-speed diesel) power generation facility in Punjab, comprising 15 generating units with a nameplate capacity of 1,600 Megawatts (MW).

Assigned ratings incorporate the business risk profile of Pakistan’s non-renewable power production sector, assessed as medium to low, reflecting the cyclicality of demand, regulatory framework, and capital intensity.

Demand for electricity in Pakistan is stable due to its essential nature and consistent consumption across various sectors, supported by population growth and urbanization.

The sector operates under a highly regulated framework governed by NEPRA, with significant implications for operational dynamics and profitability.

Capital intensity and the presence of established players create barriers to entry, ensuring market stability.

The Company benefits from adjustments to its business model, diversification initiatives, and its strategic importance within Pakistan’s energy sector, supported by its inclusion in NTDC’s IGCEP 2022–2031. Strong sponsorship through WAPDA also enhances its profile.

Assigned ratings also consider the financial risk profile of the Company.

Profitability has been supported by investment income and interest earned on delayed payments, despite the absence of revenue from CPPA pending tariff finalization.

The capitalization profile is characterized by a lack of long-term debt, a large equity base, and reduced gearing and leverage ratios.

The liquidity profile benefits from significant short-term investments and cash equivalents, supporting a healthy current ratio.

These factors collectively reinforce the Company’s ability to meet its obligations.

Going forward, the assigned ratings remain sensitive to the Company’s ability to secure and renew critical agreements, including a PPA under negotiation, and to maintain operational continuity through diversification initiatives in renewable and conventional energy projects.

Ratings will remain dependent on the timely approval of tariffs, realization of revenues, and adherence to regulatory and contractual commitments.

Any weakening in these areas may impact on the overall rating assessment.

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