PACRA Assigns Preliminary Ratings to First Retail Utility Sukuk of K-Electric Limited | PKR 3bln | TBI

The ratings reflect K-Electric Limited’s (“KE” or “the Company”) strategic role as Pakistan's only privatized and vertically integrated power utility company. This means the organization undertakes and manages three key areas including Generation, Transmission and Distribution and henceforth supplies electricity to its consumers. KE remains committed to its transformative journey of growth in a competitive energy landscape. KE's approved Power Acquisition Programme (PAP) for FY24 to FY28 outlines a strategic plan for expanding capacity to meet the growing energy demand. Additionally, a rehabilitative transmission and distribution investment plan for USD 2 billion for FY24 to FY30 has also been approved. This plan aims to achieve a 30% growth in the customer base, increase the share of renewable energy by 20%, and reduce power outages by 30%. Additionally, KE has filed an unbundled Multi-Year Tariff (MYT) this time and has submitted separate tariff petitions for Generation, Transmission, Distribution, and Supply. The Generation Tariff was approved in October 2024, while the tariffs for Transmission, Distribution, and Supply are still under review. As a result, the financial statements for FY24 cannot be finalized within the stipulated timeline. It may be further noted that the Company has already apprised its apex regulators, that is, NEPRA, the SECP and PSX on the subject matter. However, continued engagements are being done to expedite the approval process with the aim of circulating the accounts soon. Moreover, to address liquidity gaps resulting from the timing differences between outflows and receipts from power purchasers, KE plans to issue its first Unsecured, Rated, Retail Listed Short-Term Utility Sukuk (“Retail Sukuk” or “Sukuk”). The Sukuk will be offered to investors through a priority allocation with KE consumers receiving preferential treatment as the primary target market. In addition to the standard profit payment method of payment via bank transfer, this sukuk has a unique feature where investors will also have the option to receive their profit payments as adjustments to their monthly KE utility bill, given that they are KE consumers. The instrument will have a tenor of one year and principal will be repaid at maturity.
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. Maintaining financial discipline with the issuance of this sukuk remains imperative.

About the Entity
KE, a publicly listed company in Pakistan, was established in 1913 as KESC and privatized in2005. Its majority shares (66.4%) are owned by KES Power, a consortium with international investors, while the Government of Pakistan holds 24.36%. The rest are listed as free float shares.

About the Instrument
KE is in the process of issuing the Retail Sukuk for up to PKR 3,000 million, which includes a green shoe option of up to PKR 1,000 million. The issuance will proceed in phases, with two contingencies in place i) A minimum allocation of up to PKR 1,000 million will be allocated to Pre-IPO investors, including KE’s industrial and large commercial consumers, as well as High Net-Worth Individuals (HNWs) registered as Qualified Institutional Buyers (QIBs), and ii) A minimum allocation of up to PKR 300 million to the General Public (excluding Pre-IPO investors). The profit rate will be set at a spread of up to 20 basis points over a base rate, which will be determined as either the 6-month KIBOR or the 3-month KIBOR, subject to final determination.