PACRA Assigns Preliminary Ratings to K-Electric Limited | PPSTS-28 | PKR 7bln | TBI

The ratings reflect the strategic significance of K-Electric Limited ("the Company" or "KE") as a vertically integrated power utility company responsible for the generation, transmission, and distribution of electricity in Karachi and adjacent areas of Sindh and Balochistan. KE's Investment Plan of PKR 392bln for FY24 to FY30 and the Power Acquisition Programme (PAP) for FY24 to FY28 have been approved by the Authority on April 24, 2024, and May 20, 2024, respectively. However, KE's Multi Year Tariff (MYT), which expired in June’23, has been filed and the KE management is actively in discussion with NEPRA for its early finalization. Drawing from previous MYT experiences, KE has filed separate tariff petitions for its business segments (Generation, Transmission, Distribution and Supply). The Generation Tariff is at more advance stage with a decision expected by end of July’24. For the Transmission, Distribution and Supply tariff petition, public hearing was held on 27th June 2024 and the subsequent deliberations are expected to be concluded soon. The management expects that the entire procedure to be completed by the first quarter of FY25.Consequently, due to non-availability of approved tariff determinations, the financial reports for the all quarters of FY24 remain unavailable. In the absence of these financial statements, forecasted figures for FY24 based on actualized operational results and new MYT considerations were analyzed along with projections incorporating the approved investment plan, actual cashflows, and debt profile. According to projections, the Company's debt profile is expected to rise, mainly to enhance the transmission and distribution network. The cash flow position provides comfort in timely debt servicing. Additional support has been drawn from the fact that KE has marked its funds in Master Collection Accounts (MCA) for repaying its long-term debt for meeting its obligations timely.KE reduced its Transmission and Distribution (T&D) loss to 15.3% in FY23 and is actively working to reduce these losses, moving forward.
The outcome of the tariff determination exercise and its subsequent impact on KE remains pivotal in determining and maintaining the validity of the assigned ratings. Timely completion of the process is imperative for ratings as well as assessment of KE's financial stability and operational performance.

About the Entity
K-Electric, a vertically-integrated power utility, has been in operation for more than a century. The total installed capacity of K-Electric is 2,817MW, having an arrangement with National Grids and IPPs for 1,650+ MW. KES Power Limited holds 66.4% shares in K-Electric, while the Government of Pakistan owns 24.4%. KES Power has three major shareholders i.e. Al-Jomaih Group of KSA, NIG of Kuwait and IGCF SPV 21 Limited (an SPV registered in Cayman Islands). Mr. Moonis Alvi, CEO is associated with the Company since 2008. He is supported by an experienced team.

About the Instrument
KE is in process to issue rated, privately placed, unsecured, debt instrument in the nature of short-term sukuk (STS) PPSTS-28 of PKR 7,000mln in July, 2024, to finance the Company's working capital requirements. PPSTS-28 will be issued in replacement of privately placed STS ("PPSTS-23") which will get mature on 15-Aug-24 having amount of PKR 5,000mln. The tenor of PPSTS-28 will be 6 months and carrying a profit rate of 6MK+ up to 30bps p.a. Profit and principal will be realized at the time of maturity.