Fitch Ratings has upgraded Pakistan Water and Power Development Authority’s (WAPDA) Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CCC+’, from ‘CCC’.
Fitch typically does not assign outlooks to issuers with a rating of ‘CCC+’ or below due to the high volatility of these ratings. The entity’s IDR reflects Fitch’s rating definition of a low margin for safety, given its reliance on government funding.
The upgrade follows the upgrade of the Pakistan sovereign on July 29 2024, as WAPDA’s ratings are equalised with those of the sovereign and are sensitive to any rating action on the sovereign.
“We believe extraordinary support from Pakistan to WAPDA would be ‘Virtually Certain’ in case of need, reflecting a maximum support score of 60 under our Government-Related Entities (GRE) Rating Criteria, even though the government’s capacity to support the entity is likely to be impaired amid its high funding requirements as well as the government’s weak credit quality. Hence, we derive the entity’s ratings based on our rating definitions in addition to the support factors under our GRE criteria,” the rating agency said in its report.
WAPDA is a hydroelectric power generation company that is wholly owned by the state. It was set up to integrate the development of Pakistan’s water and power resources. It made up 88% of the nation’s hydroelectric power capacity and 20% of installed capacity in 2023.
The senior unsecured bond rating is equalised with the entity’s IDR.
An upgrade of the sovereign rating may trigger a positive rating action for WAPDA. Conversely, a sovereign downgrade or reduced government responsibility or incentive to provide support could lead to a negative rating action, Fitch said.
It further stated that rating action on WAPDA’s IDR would lead to similar rating action on its senior unsecured notes. WAPDA’s ratings are linked to those of the Pakistan sovereign.
