PACRA Assigns Initial Ratings to K-Electric Limited | PPSTS-28 | PKR 7bln | Aug-24

The ratings incorporate the strategic importance of K-Electric Limited, (“the Company” or “KE”) as the only vertically integrated power utility company in Pakistan which means it is responsible for generation, transmission, as well as distribution of electricity in Karachi and other adjoining areas of Sindh and Balochistan. KE’s Investment Plan of PKR 392bln has been approved for FY 2024 to FY 2030, which is aimed for 30% growth in customers, 20% increase in KE’s share of renewables and another 30% reduction in power outages. KE's Power Acquisition Programme (PAP) for the period FY 2024 to FY 2028 has been approved by NEPRA on May 20, 2024 to develop a long-term capacity expansion plan to meet the energy demand in a reliable, sustainable and cost-effective manner as the Supplier of Last Resort (SoLR) for its licensed service territory. However, KE's Multi Year Tariff (MYT), which expired in June’23, has been filed and the KE management is actively pursuing NEPRA for timely conclusion of its petitions for award of MYT post June'23. Drawing from previous MYT experiences, KE has filed separate tariff petitions for its business segments (Generation, Transmission, Distribution and Supply). The Generation Tariff is at more advance stage with a decision expected by end of Sep’24. For the Transmission, Distribution and Supply tariff petition, public hearing was held on 27th June 2024 and the subsequent deliberations are expected to be concluded soon. Accordingly, in the absence of approved MYT, the financial statements for all the quarters of FY24 remain unavailable. It may be further noted that the Company has already apprised its apex regulators that is NEPRA, SECP and PSX on the subject matter.
The outcome of the tariff determination exercise and its subsequent impact on KE remains pivotal in determining and maintaining the validity of the assigned ratings. Timely completion of the process is imperative for ratings as well as assessment of KE's financial stability and operational performance.

About the Entity
KE, a vertically integrated power utility, has been in operation for more than a century. KE’s power generation capacity is 2,817MW. In addition to its own generation capacity, KE has arrangements with several IPPs & CPPA-G for 1,650MW+ capacity. KES Power Limited holds 66.4% shares in K-Electric, while the Government of Pakistan owns 24.4%. KES Power has three major shareholders i.e. Al-Jomaih Group of KSA, NIG of Kuwait and IGCF SPV 21 Limited (an SPV registered in Cayman Islands). 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-28") amounting PKR 7,000mln on 05-Aug-24, to finance the Company’s working capital requirements. PPSTS-28 issued in replacement of privately placed short-term sukuk ("PPSTS-23") of PKR 5,000mln which was redeemed on 15-Aug-24. The tenor of PPSTS-28 will be 6 months and is carrying a profit rate of 6MK+20bps. Profit and principal will be realized at the time of maturity.