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Anam Waqas Ghayour

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PACRA assigns Initial rating to K-Electric Limited | PPSTS-18 | PKR 5bln | Aug’23

Rating Type Debt Instrument
(16-Nov-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. During FY23, KE reported a net loss of PKR 30.89bln (FY22: Profit of PKR 8.5bln). 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 & 0.6x (FY22: 6.0x & 1.3x) respectively. Leveraging of the company also increased to 54.8% (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.
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.

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%. 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.

About the Instrument
KE issued a rated, unsecured, privately placed, short-term, sukuk ("PPSTS-18") amounting PKR 5bln on August 09, 2023, to finance the Company’s working capital requirements. PPSTS-18 issued in replacement of privately placed short-term sukuk ("PPSTS-13") which was redeemed 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.

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.