Kot Addu Power Co (Kapco) is likely to pay a final cash dividend of 3.5 rupees to 4 rupees for the year ended June 30, 2005. Kapco board will meet on September 6, 2005 to announce the annual results for FY05.
Kapco, is likely to announce a healthy final cash dividend of Rs 3.5-4.0 per share due to savings from fuel efficiency and no penalty from Wapda during the year ended on June 30, 2005.
An interim cash dividend of Rs 3.5 per share has already been announced with 1HFY05 results. This means that the cumulative annual cash dividend for the whole year is likely to remain close to Rs 7.0-7.50 per share.
During FY04 the company paid total cash dividend of Rs 6.5 per share.
Abdul Rasheed, research analyst at Jahangir Siddiqui Capital Markets, in a report said that in case of IPPs any unforeseen repair and maintenance shutdown might cause available capacity to decline below dependable capacity.
This can lead to penalties by Wapda, which would have a negative impact on the company's earnings as well as dividends to shareholders.
In case of a plant shutdown, Kapco cannot recover liquidated damages from insurance company for a certain initial time period, whereas a fixed portion of the damaged asset's replacement value is also not recoverable and hence is borne by the company.
Kapco has successfully renegotiated the initial waiver period from 90 to 40 days. Also, the non-recoverable replacement component has also been reduced from $2.5 million to $1 million. This means there are lesser chances of liquidated damaged, and higher portion of replacement value of damaged asset can be recovered by the company, in case of a breakdown.
Kapco has also built an inventory of critical plant spares to lower the repair time and hence further reduced chances of liquidated damaged by Wapda. Due to these facts, the probability of plant maintenance problems and subsequent penalty by Wapda has been significantly reduced for the company.
This will lead to a more predictable cash flow from the company in the future also.