The Pakistan Credit Rating Agency Limited
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Ahsan Zahid

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PACRA Updates the Entity Ratings of K-Electric Limited | Rating Watch

Rating Type Entity
(21-Jun-23 )
(29-Jun-22 )
Action Maintain Maintain
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch Yes -

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. During 9MFY23, KE reported a net loss of PKR 39.39bln (9MFY22: Profit of PKR 1.49bln). The loss is mainly attributable to macroeconomic factors including the reduction in sent-out units on the back of slow economy and increase in fuel prices. Furthermore, the consistent devaluation of Pak Rupee resulted in huge exchange loss combined with the increase in debt servicing cost because of the increase in policy rates. The Company operates under regulated tariff, and as per current MYT, no adjustment is provided in the tariff for changes in sent-out and policy rates. Working Capital also remains a challenge because the delayed payments from the government resulted in enhanced borrowings ultimately curtailing profitability. Consequently, finance cost coverage & debt coverage plummeted to 2.4x & 0.5x (FY22: 6.0x & 1.3x) respectively. Leveraging of the company also increased to 60% (FY22: 53%) and it is expected to increase further on account of the Board approved Investment Plan for the improvement of transmission and distribution segments. The comfort for the timely repayment of long-term borrowings is available as KE marks the funds in Master Collection Accounts (MCA) ensuring the viability to meet its obligations timely. Support has also been drawn from the sustained, rather improved performance metrics of the Company, owing to continuous improvement across various operational metrics including a reduction in T&D losses however, recovery ratio needs to improve going forward. KE has witnessed synchronization of 900MW RLNG-fired power project (BQPS-III). Both units of the BQPS III project have been successfully commissioned. In addition, the Company is actively pursuing to expedite the determination of pending quarterly tariff variation for cost which have been determined by authority. Going forward, as part of tariff renewal process, KE has filed separate tariffs for Generation, Transmission, Distribution and Supply businesses for better alignment with the regulatory framework and sector developments as well as to provide greater transparency for next control period from FY 24 to FY30. KE expects a sustainable cost-reflective tariff with a robust adjustments mechanism which will have a positive impact on its profitability going forward.
The Rating Watch status reflects the ongoing developments regarding the approval of tariffs by the National Electric Power Regulatory Authority (NEPRA), as requested by the Company for its Generation, Transmission, Distribution and Supply businesses. The outcome of the tariff determination exercise, as well as its impact on the Company, will be crucial factors in determining and maintaining the validity of the ratings. It is of utmost importance for the integrity of the ratings that this process reaches a timely resolution.

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 held 66.4% share in K-Electric, while the Government of Pakistan owned 24.4%. KES Power is a consortium of Al-Jomaih Group of KSA, NIG of Kuwait and IGCF (a private equity fund). Mr. Moonis Alvi, CEO is associated with the company since 2008. He is supported by an experienced team.

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.