The Pakistan Credit Rating Agency Limited
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Faizan Arif

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PACRA Maintains Rating Watch on Entity Ratings of K-Electric Limited

Rating Type Entity
Action Maintain Maintain
Long Term AA AA
Short Term A1+ A1+
Outlook Developing Developing
Rating Watch Yes Yes

Owing to pending notification of Multi Year Tariff (MYT) for the period from July 2016 onward, K-Electric Limited (KE) from time to time has obtained extension from SECP for holding AGM for 2017 and 2018. In the application dated 25th September, 2018, K-Electric stated the last Annual General Meeting was held on 19th September, 2017 for approval of accounts for the year ended 30th June, 2016. The AGM for approval of accounts for the year ended 30th June, 2017 was to be held, with SECP direction, after vacation of stay order issued by Sindh High Court (SHC). While there has been no material change in the circumstances, K-Electric requested the SECP to allow the company to seek direction at a time when the company was reasonably certain about timing of AGM for FY18. K-Electric assured that the company was taking all necessary actions to sort out the matter prudently and expeditiously to hold AGM for FY18 as soon as possible.

The company lately appointed M/s. A.F. Ferguson & Co, Chartered Accountants and M/s. BDO Ebrahim & Co, Chartered Accountants as statutory joint auditors of the company for FY17.
The management has represented that AGM of the company for 2017 would now be convened upon completion of the audit within 2-3 months.
In the recent announcement (December 24th, 2018), K-Electric has notified that they have received fresh Public Announcement of Intention from Shanghai Electric Power Company Limited to acquire up to 66.4% voting shares of K-Electric Limited.

Management accounts reflect sustained business and financial risk profile of the entity. However, PACRA would continue to monitor the developments and will update its rating opinion accordingly.

About the Entity
K-Electric, a vertically-integrated power utility, has been in operations for more than a century. At end-Mar18, KES Power Limited (KESP) held 66.4% share in KE, 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 KE against a consideration of US$ 1.77bln. The transaction will close once customary closing conditions and requisite regulatory approvals are obtained.

KE has a thirteen-member board that comprises nine representatives of KES Power, three GoP members and one independent member. Mr. Tayyab Tareen has been recently appointed as the chairman of the board; he was previously serving as the CEO. The newly appointed CEO - Mr. Moonis Alvi is associated with the company since 2008. He is supported by an experienced team.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.