Moody’s Investors Service - one of the top three global credit rating agencies - has assigned B3 rating to Pakistan Water and Power Development Authority (Wapda) ahead of the authority’s move to float an international bond to raise financing for its upcoming projects.
“Moody’s Investors Service has assigned a first-time corporate family rating (CFR) of B3 to Pakistan Water and Power Development Authority. The rating outlook is stable,” the agency said in a statement on Tuesday.
Earlier, the authority planned to raise debt of up to $500 million from the international market to finance its upcoming projects.
“The authority is expected to issue the bond by the end of this year (December 2020) or early next year,” Pakistan Kuwait Investment Company Head of Research and Development Samiullah Tariq said while talking to The Express Tribune.
The company was supposed to float the bond in March 2020 but it got delayed due to the Covid-19 outbreak.
The bond would not only help the authority to raise financing for its upcoming hydroelectric power and water projects, but would also help stabilise the country’s foreign currency reserves, Tariq said. Moody’s has assigned the same rating to state-owned Wapda that it earlier issued for the government of Pakistan - B3 with a stable rating outlook. “The stable outlook will help the authority to raise debt at a good price,” he said.
Wapda’s previous plans suggested that it was aiming to raise financing of up to $500 million in multiple tranches over the next four to five years, depending on the requirement of funds as per projects in the pipeline. It wanted to float the first $100 million bond by March 2020, but delayed it due to the pandemic.
Wapda’s B3 CFR is primarily driven by its baseline credit assessment (BCA) of B3, and Moody’s expectation of a very high likelihood of support from, and a very high level of dependence on, the government of Pakistan in times of need, under the Moody’s joint default analysis approach for government-related issuers. “Wapda’s B3 BCA reflects its dominant position in supplying hydropower services and developing water infrastructure in Pakistan, as well as the recurring financial support it receives from the Pakistani government,” said Boris Kan, Vice President and Senior Credit Officer at Moody’s.
“At the same time, the BCA is constrained by the company’s weak financial profile due to its sizable hydropower capacity expansion spending, and the delay in collecting hydropower generation tariffs,” added Kan.
Moody’s expectation of a very high likelihood of government support is based on the fact that the Pakistani government fully owns and directly supervises the company.
It also reflects the company’s strategic importance to the government, as its sole platform to construct and operate hydropower assets to supply affordable electricity, and build water storage facilities to help address the country’s acute water challenges.
Although there is no explicit uplift incorporated in the rating, the very high likelihood of extraordinary support indicates the resilience of Wapda’s B3 rating, even if the company’s BCA is lowered, assuming no material change in the underlying creditworthiness of Wapda. The delay in collecting hydropower tariffs by the company is mainly driven by the significant cash shortfall in the Central Power Purchasing Agency (CPPA).
Published in The Express Tribune, October 28th, 2020.
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