Pakistan Credit Rating Agency upgrades entity rating of Islamabad Electric Supply Company Limited

Lahore, May 15, 2015 (PPI-OT): The Pakistan Credit Rating Agency Limited (PACRA) has upgraded the long term entity rating of Islamabad Electric Supply Company Limited (IESCO) to ‘AA-‘ (Double A Minus) [previous: A+]. The short term rating is maintained at ‘A1′ (A One). The ratings denote a very low expectation of credit risk.

IESCO’s ratings reflect consistent improvement in the entity’s standalone operational as well as financial profile. Sound performance is reflected in the lowest T and D losses and one of the highest recovery ratio across all distribution chain. Although low recoveries from AJK remain a key concern, given involvement of the federal government in this, the matter is expected to resolve in amicable manner. IESCO maintains a healthy financial profile, mainly supported by extended working capital engendered through stretched payables to the power supplier – NTDC, another government entity.

Support from GoP, reflected from sizeable equity injection during FY14, provided further respite for working capital management. The current tariff structure of DISCOs is subject to comprehensive annual review; that leads to undue delays. The industry is expected to move to mutli-year tariff regime. This should bring stability in financial profile.

Meanwhile, advancement in technological infrastructure will lead to operational efficiencies. The ratings continue to draw comfort from IESCO’s strategic importance being the sole electricity distribution company in its designated territory. This is supplemented by IESCO’s sovereign ownership.

The ratings are dependent on the company’s ability to sustain performance against key operational parameters. Timeliness of tariff notification and low disallowed portion of pass through costs remain important to avert financial constraints. Any unfavourable intervention by regulator and/or any other apex body, affecting company’s operation may increase risk. Any change in ownership may also impact the ratings.

For more information, contact:
Hammad Rashid
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com