Muhammad Atif Chaudhry
PACRA assigns Preliminary rating to K-Electric | PPSTS-18 | PKR 5bln | TBI
|Rating Type||Debt Instrument|
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. Leveraging of the company also increased 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 loss compared to same period last year, however, recovery ratio needs to improve going forward. The addition of 900 MW will provide impetus to pursuit of optimizing the cost of power in the KE system. In addition, the Company is actively pursuing to expedite the determination of pending quarterly tariff variation for cost which have been determined by authority. The Rating Watch status reflects the ongoing developments regarding the approval of tariffs by the 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.
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%. There are certain developments happening at the key shareholder’s level of which details are in the public domain and are subject to assessment as and when materialized. Mr. Moonis Alvi, CEO is associated with the company since 2008. He is supported by an experienced team.
KE is in the process of issuing a rated, unsecured, privately placed, short-term, sukuk ("PPSTS-18") amounting PKR 5bln in Aug 23, to finance the Company’s working capital requirements. PPSTS-18 will be issued in replacement of privately placed short-term sukuk ("PPSTS-13") which will redeem on 10-Aug-23. The tenor of PPSTS-18 will be 6 months and carrying a profit rate of up to 6MK+30bps. Profit and principal will be realized at the time of maturity.