The Pakistan Credit Rating Agency Limited
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Muhammad Atif Chaudhry

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PACRA assigns Initial rating to K-Electric | PPSTS-13 | PKR 5bln | Feb 23

Rating Type Debt Instrument
(26-May-23 )
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. The Company’s board of directors comprises of ten directors currently. Three vacancies are to be filled soon. However, the quorum of all board committees is complete. 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 reported a net loss of PKR (39.39)bln during 9MFY23 (9MFY22: Profit of PKR 1.49bln). However, the loss 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 comfort for the rating has been drawn from the Company's express intention to achive improvements on operational fronts to curtail losses. In addition, the Company is actively pursuing to expedite the determination of pending quarterly tariff variation for cost which have been determined by authority. KE has also applied separate tariff for each business segment for the next control period from FY24 to FY30 (tariff expiring on June 2023), under the proposed tariff, KE has proposed an indexation mechanism to account for changes in the macroeconomic factors. KE expects a sustainable cost-reflective tariff with a robust adjustments mechanism which will have a positive impact on its profitability going forward. The Company is also pursuing its 900 MW RLNG project on a fast-track basis in unit-I & II of 450 MW each. KE has witnessed the synchronization of the 900MW RLNG-fired power project (BQPS-III). Both Units have achieved base load operations. 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.

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. Currently, KES Power Limited (KESP) held 66.4%, while Government of Pakistan owned 24.4% share in K-Electric. 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 a rated, unsecured, privately placed, short-term, sukuk ("PPSTS-13") amounting PKR 5,000mln in Feb 2023, to finance the Company’s working capital requirements. PPSTS-13 issued in the replacement of privately placed short-term sukuk ("PPSTS-7") which was redeemed on 10-Feb-23. The tenor of PPSTS-13 is 6 months and carrying a profit rate of 6MK+100bps. Profit and principal will be realized at the time of maturity.

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.