The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Assigns Initial Rating to WAPDA Dasu TFC-C - PKR 4,235.3 Million

Rating Type Debt Instrument
(20-May-22 )
Action Preliminary
Long Term AAA
Short Term -
Outlook Stable
Rating Watch -

The Water and Power Development Authority of Pakistan (WAPDA) is in process of issuing the third tranche i-e series C of PPTFC worth PKR 4.235 bln. WAPDA intends to utilize this amount to partially finance the construction of the DASU hydropower project ("DHP-1" or the "Project"). Dasu once completed would be the second largest hydel project in Pakistan. It is a run of river project on the Indus River located in Dasu Kohistan, Khyber Pakhtunkhwa about 350 KM from Islamabad. The project started in 2017 and is expected to be completed in May'27. The project is expected to be completed in two stages, the installed capacity would be 4,320MW (stage-I 2,160MW) and the annual energy which would be produced is 21,485 GWh (Stage-I 12,220 GWh). DHP-I includes construction of hydraulic structure on the Indus river and underground power generation facilities. Due to revised land cost ,the cost for DHP-I has been revised to PKR 510.980bln. Out of the total land required (5,051 Acres) for the project 4,350 Acres have been acquired. The Project would be financed through a mix of WAPDA internally generated cash (15%) and borrowing (85%) i) Long-term (local & foreign) ii) Bonds Issuance (Islamic & Conventional). The assigned rating of TFC incorporates an unconditional and irrevocable guarantee by the Government of Pakistan (GoP). The guarantee is covering the payment of the total outstanding amount of the TFC and related profit component. GoP would pay the entire called amount immediately upon receiving a demand notice from the issue agent. Additionally, WAPDA shall maintain a debt payment account (DPA) under the exclusive lien of the issue agent. Within the first fifteen days of each month commencing from the Musharaka Contribution Date (as defined in the Musharaka Agreement dated March 29, 2017), WAPDA shall deposit an amount equal to 1/6th of the upcoming instalment in the DPA. The rating apart from a debt payment and guarantee mechanism recognizes WAPDA's strategic importance as the major hydroelectric power supplier to the country. WAPDA generated 32,073GWh electricity in FY21. WAPDA expects to generate an additional ~8,070MW by the completion of new hydel projects in the next four years.
WAPDA's financial profile draws comfort from strong cash flows. Continued compliance with the predefined covenants of PPTFC, including maintenance of DPA would remain critical.

About the Entity
WAPDA, was established through an act of parliament in February 1958 (WAPDA Act 1958) for the development and maintenance of water and power resources. WAPDA has 22 projects with a total hydel generation capacity of 9,359MW.

About the Instrument
WAPDA will issue a rated, secured, privately placed Term Finance Certificate ("TFC") of PKR 4,235.3mln in May'22 to partially finance stage-1 of DHP-I. The TFC has a tenor of 10 years. The profit will be paid semi-annually in arrears at the rate of 6MK+1.45% p.a calculated on a 365 days basis on the outstanding principal amount. The principal will be paid in twenty equal semiannual instalments which will commence from Nov'22 amounting to PKR 211.77mln each. The TFC is fully secured by an unconditional & irrevocable first demand guarantee covering principal and profit from the Ministry of Finance, GOP and exclusive lien over debt payment account for the benefit of investors.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.