Moody's upgrades Wapda's CFR, BCA ratings
Concurrently, it changed the outlook to stable from positive. But at the same time expressed concern over its weak financial position and persistent operational challenges in Neelam-Jhelum power project.
'The upgrade of Wapda's CFR and the revision of outlook reflect the recent rating action taken on the government of Pakistan. This alignment underscores the strong credit linkage between Wapda and the sovereign, driven by the government's full ownership and direct oversight of the company, as well as Wapda's exclusive focus on domestic operations,' said Erman Zhang, a Moody's Ratings analyst.
BCA also pushed up: Moody's upgrades Wapda's CFR to Caa2
This rating action follows the rating action on the government of Pakistan (Caa1 stable) on 13 August 2025.
Wapda'sCaa1 CFR incorporates its caa1 BCA and Moody's assessment of a high likelihood of extraordinary support from, and the company's very high dependence on, the government of Pakistan when needed, under its Joint Default Analysis (JDA) for government-related issuers.
Wapda'scaa1 BCA reflects its exposure to persistent operating challenges at its 969 megawatt (MW) Neelum-Jhelum power station (NJHP) and its weak financial profile due to its sizeable hydropower capacity expansion plan, its long receivables cycle and delayed tariff decisions. The BCA also considers Wapda's position in Pakistan's power sector as a dominant hydropower supplier, as well as the recurring financial support it receives from the government.
The rating agency noted that the company's weak financial profile is the result of an unpredictable regulatory framework and its inability to sufficiently recover costs in a timely manner, leading to delayed tariff decisions and a long receivables cycle.
Moody's projected that the Wapda's funds from operations (FFO) will remain very weak over the next 12-18 months, and a sustained recovery will depend on the regulator approving an increase in its tariffs as well as the operational resumption of NJHP. Moody's said that its assessment of Wapda's financial metrics is based on the combined financials of Wapda's power segment and Neelum Jhelum.
The report said for the same reasons, WAPDA's liquidity will remain strained because of its substantial current borrowings and large capital spending. The company did not repay certain government loans as per the agreed repayment schedule, in part due to the delays in its recovery of outstanding receivables from its government-owned off-taker. Moody's expect this situation will continue.
Operations at NJHP have been suspended since May 2024 because of weak pressure in the hydro project's tailrace tunnel. It is unclear when the project could resume operations or the repair cost required at present.
During this period, NJHP will likely rely on recovery of outstanding receivables to meet its operating cash requirement, fund the repair cost and service its external debt. NJHP had previously shut down for 13 months after major cracks were discovered in its tunnel and had just resumed operations in September 2023.
Moody's said expectation of a high likelihood of government support for Wapda considers the Pakistani government's full ownership and direct supervision of the company. It also reflects the company's strategic importance to the government as it is an important platform that (1) constructs and operates hydropower assets to supply affordable electricity in Pakistan, and (2) builds water storage facilities to help address the country's acute water challenges.
However, such considerations are offset by the risks stemming from the government's low policy predictability and transparency. In addition, the financial challenges faced by the government, reflected in its Caa1 ratings, indicate its limited capacity to provide support to Wapda.
The stable outlook on the rating mirrors the stable outlook on Pakistan's sovereign ratings, based on Moody's expectation that the relationship between Wapda and the government will remain intact at least over the next 12-18 months.
Copyright Business Recorder, 2025
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