PACRA Assigns Preliminary Ratings to K-Electric Limited |PPSTS-23 | PKR 5bln | TBI

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. During FY23, KE reported a net loss of PKR 30.89bln which was a fallout from the previous year which reported a profit of PKR 8.5bln in FY22. The loss is mainly attributed to slowing down of the economy and increase in fuel prices which resulted in a decrease in KE’s sent-out units. Furthermore, the consistent devaluation of Pak Rupee throughout the year resulted in a huge exchange loss which was combined with the increase in debt servicing cost because of increase in policy rates. Since the Company operates under a regulated MYT by the NEPRA, there was no adjustment made in the tariff for changes in sent-out and policy rates. Moreover, the working capital also remained a challenge because of delayed payments from the government which resulted in enhanced borrowings ultimately curtailing the Company’s profitability. As a result, 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 is
expected to increase further on account of the board approved Investment Plan for the improvement of transmission and distribution segments. KE secures its payments against long-term borrowings as the Company dedicates funds in its MCA to meet its obligations in a timely manner. The Company has made continuous improvements in its performance metrics which include a reduction in its T&D losses & improvement in its recovery ratio. KE has also successfully synchronized both units of its 900MW RLNG-fired power project (BQPS-III) whereby both units have successfully been commissioned.
In the ongoing tariff renewal process, NEPRA granted KE its Distribution and Supplier License on January 19, 2024, valid for 20 years. However, the tariff petition for all segments is in advanced stages and expected to conclude by the end of FY24. Consequently, due to the lack of approved tariff determinations, financial reports for the first quarter and half-yearly of FY24 remains pending.

About the Entity
KE is a vertically integrated power utility company which has been running its operations for over a hundred years. The total generation capacity of KE is 2,817 MW. Along with that, KE procures an additional 1650+ MW from National Grid and IPPs. Additionally, KES Power Limited holds 66.4% share of the Company while the Government of Pakistan owns another 24.4%. All key developments are declared publicly at the shareholder level. The CEO of the Company is Mr. Moonis Abdullah Alvi who has been associated with the Company since 2008.

About the Instrument
KE is in process to issue rated, privately placed, unsecured, debt instrument in the nature of short-term sukuk (STS) PPSTS-23 of PKR 5,000mln in Feb, 2024, to finance the Company's working capital requirements. PPSTS-23 will be issued in replacement of privately placed STS ("PPSTS-18") which was matured on 09-Feb-24. The tenor of PPSTS-23 will be 6 months and carrying a profit rate of 6MK+10bps p.a. Profit and principal will be realized at the time of maturity.