SEOUL
Fitch Ratings has affirmed Pakistan Water and Power Development Authority’s (WAPDA) long-term foreign-and local-currency issuer default ratings at ‘B-’ with a stable outlook.
Concurrently, Fitch has affirmed WAPDA’s senior unsecured note rating at ‘B-’. “Our ‘very strong’ assessment of ‘status, ownership and control’ remains unchanged, given the strong statutory support, stable government ownership – which we do not expect to change – and high level of government control,” said Fitch Ratings in a new report.
Fitch Ratings said the build-up of circular debt in the energy sector exposes WAPDA to external funding. The government aims to mitigate the circular debt issue by providing financial support; it had guaranteed 22pc of WAPDA’s interest-bearing debt as of June 2021 and 56% of the debt comprises government loans. The government will be liable for loans passed by the Authority with the sanction of the government under the WAPDA Act. Supportive policies, such as corporate tax exemptions, land acquisitions and a tariff mechanism, also enhance WAPDA’s operational stability, said Fitch.
It said Pakistan’s policies aim to boost the hydropower generation mix and reduce reliance on fossils. WAPDA’s hydropower generation accounted for 27% of the generation mix in 2021, while other renewable energy only accounted for 3%. The government aims for hydro power to contribute over 40% of Pakistan’s energy demand by 2030, implying that the development of hydropower generation is of significant strategic importance to the country. “We believe WAPDA’s installed capacity would be difficult to substitute and that any transition process would lead to severe service disruption,” said Fitch.
“WAPDA’s ratings reflect our assessment of government linkage and support incentive and results in a weighted score of 50, based on our government-related entities rating criteria. We adopt a top-down approach and equalise WAPDA’s rating with those of Pakistan (B-/Stable), regardless of WAPDA’s standalone credit profile,” said Fitch.
Fitch said that total debt expanded by 31pc yoy to Rs470 billion in 2021; this comprised Rs361 billion of interest-bearing debt and included a Rs79 billion note issue for project investments. The main funding sources were government loans and market-funded credit that was enhanced by the government.
Moreover, WAPDA had Rs141 billion in cash, cash equivalents and short-term investments (term deposits) as at June 2021, against Rs189 billion of the current portion of long-term debt, of which 87% was government loans and the rest guaranteed by the government. “We regard WAPDA’s liquidity as manageable due to its cash on hand and the government’s supportive loan policy,” said Fitch Ratings.
