PACRA Assigns Initial Ratings to K-Electric Limited | PPSTS-29 | PKR 6bln | Sep-24

The ratings incorporate the strategic importance of K-Electric Limited (the “KE” or “the Company”) 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 2024-2030, 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 2024-2028 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 has been approved for the period post-June 2023, the MYT for Transmission, Distribution, and Supply (FY 2024–2030) is still under review. As a result, the financial statements for FY24 and 1QFY25 are unavailable until the MYT is finalized. It may be further noted that the Company has already apprised its apex regulators that is NEPRA, SECP and PSX on the subject matter. Moreover, KE is actively diversifying its fuel mix by investing in renewable energy projects. The company has received 15 bids for its 150 MW solar projects in Winder and Bela, Balochistan, and seven bids for Pakistan’s first 220 MW hybrid wind/solar project in Dhabeji, Sindh. These initiatives, along with the planned 270 MW GOS Solar Renewable Project, aim to achieve 30% renewable energy in KE’s generation mix by 2030. This strategy will reduce reliance on expensive energy sources, lower production costs, and support the country’s economic growth.
The outcome of the MYT 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 is a public listed company incorporated in Pakistan in 1913 as KESC. Privatized in 2005, KE is the only vertically integrated power utility in Pakistan supplying electricity to Karachi and its adjoining areas. The majority shares (66.4%) of the Company are owned by KES Power, a consortium of investors including Al-Jomaih Power Limited of Saudi Arabia, National Industries Group (Holding), Kuwait, and the Infrastructure and Growth Capital Fund (IGCF). The Government of Pakistan is also a shareholder (24.36%) in the Company, while the remaining are listed as free float shares.

About the Instrument
KE issued a rated, unsecured, privately placed, short-term, sukuk ("PPSTS-29") amounting PKR 6,000mln on 23-Sep-24, to finance the Company’s working capital requirements. The tenor of PPSTS-29 will be 6 months and is carrying a profit rate of 3MK+10bps. Profit and principal will be realized at the time of maturity.