The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Assigns the Initial Rating to K-Electric | PPSTS-11 | PKR 5bln | Oct-22

Rating Type Debt Instrument
(08-Dec-22 )
Action Initial
Long Term AA
Short Term A1+
Outlook Stable
Rating Watch -

The ratings incorporate the strategic importance of K-Electric Limited, (“the Company” or “KE”) being a vertically integrated power utility, responsible for the generation, transmission, and distribution of electricity in Karachi and adjoining areas of Sindh and Balochistan. Support has been drawn from the sustained rather improved performance metrics of the Company, owing to the growing demand for electricity and continuous improvement across various operational metrics including a reduction in T&D losses and a better recovery ratio. KE showed improvement in revenue in FY22: PKR 518,777mln (FY21: 325,048). However, the decline in net profit of the Company was observed on the back of a significant increase in fuel prices, exponential finance cost, increase in significant rupee devaluation and increase in Tariff differential. Working Capital also remains a challenge because the delayed payments from the government resulted in enhanced borrowings ultimately curtailing profitability because of increased finance cost. The Company is pursuing its 900 MW RLNG project on a fast-track basis in unit-I & II of 450 MW each. Unit-I is currently offline due to some technical faults identified during a test in Sep'22 and the team of global experts has been tasked to resolve this on priority while unit-II is still in a testing phase and expected to be commissioned by the end of Dec'22. The generation capacity of the Company will increase and being an efficient plant, electricity will be produced at a lower rate which would have a positive impact on the working capital of the Company.
The expected increase in generation fleet efficiency and additional power purchase from GoP, are imperative for the ratings, going forward. At the same time, upholding business and financial metrics is of utmost importance.

About the Entity
K-Electric, a vertically-integrated power utility, has been in operations for more than a century. Total installed capacity of K-Electric is 2,817MW, having an arrangement under a power purchase agreement for 1,650+ MW. At the end-jun22, KES Power Limited (KESP) held 66.4% share in K-Electric, while Government of Pakistan owned 24.4%. KES Power has entered into a share purchase agreement with Shanghai Electric Power Company Limited (SEP) for sale of up to 66.4% shares of K-Electric. The transaction is in process and will close once customary closing conditions and requisite regulatory approvals are obtained. K-Electric has ten member board. Mr. Moonis Alvi, CEO is associated with the company since 2008. He is supported by an experienced team.

About the Instrument
KE issued rated, unsecured, privately placed, short-term, sukuk K-Electric | PPSTS-11 | PKR 5bln | Oct-22 ("PPSTS-11") up to PKR 5,000mln on 26-Oct-22, to finance the Company’s working capital requirements. The tenor of PPSTS-11 is 6 months and carries a profit rate of 6MK+145bps. Profit and principal will be realized at the time of maturity. The instrument is in replacement of PPSTS-6 which matured on 27-Oct-22.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.