PACRA Assigns Preliminary Ratings to K-Electric Limited | Islamic Commercial Paper-7 upto PKR 4,295mln

The ratings reflects the operational parameters and the related data reflect improved performance going forward. The number of consumers have taken a growth of ~9% during FY19 as compared to FY18. The recovery ratio of the company, which reflect, amount received against amount billed, has taken almost 1.6% point improvement during FY19. Hence, the profitability and cashflow position of the company are expected to take a positive impact. The challenge faced by the industry is prevailing circular debt. As of July, 2019 the Company’s gross receivables from various Federal and Provincial public sector entities stand at PKR 196bln and are nearly two times the Company’s payables which total PKR 109bln. In this regard, the Company is in continuous engagement with relevant stakeholders for the resolution to the issue of receivables and payables. Further, the Company is of the view that the settlement of receivables and payables related to various Federal and Provincial government entities / departments will be made on net basis and any markup will be payable by the Company only when it will reciprocally receive markup on outstanding receivables. While the growing receivables from various government entities and departments has impacted the working capital position of the company and resultantly increased the company’s borrowing levels, overall leverage indicators reflect manageable position.
The company is creating different avenues to fund it’s enhanced needs of its working capital, recent leg of which, K- Electric is issuing Unsecured Privately Placed Islamic Commercial Paper (ICP-7) for a term of 6 months of PKR 4,295mln.

About the Entity
K-Electric, a vertically-integrated power utility, has been in operations for more than a century. At end-Jun19, KES Power Limited (KESP) held 66.4% share in K-Electric, while Government of Pakistan owned 24.4%. KES Power majority is owned (53.8%) by Abraaj Capital (Private Equity Group) with the balance held by a group of investors (Al Jomaih, Saudi Arabia and NIG, Kuwait). KES Power has entered into a share purchase agreement with Shanghai Electric Power Company Limited (SEP) for sale of up to 66.4% shares of K-Electric against a consideration of US$ 1.77bln. The transaction is in process and will close once customary closing conditions and requisite regulatory approvals are obtained. K-Electric has thirteen member board. Mr. Moonis Alvi, CEO is associated with the company since 2008. He is supported by an experienced team.

About the Instrument
K-Electric is in process of issuing Unsecured Privately Placed Islamic Commercial Paper ICP-7 of 4,295mln to finance the company’s working capital requirements. The tenor of ICP-7 is up to 6 months and carries a profit rate of 6 months KIBOR+115bps. Profit will be realized at the time of maturity. ICP-7 is a part of series instruments comprising ICPs and Short Term Sukuks which will be utilized for funding K-Electric working capital requirements.