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The Pakistan Credit Rating Agency Limited
Press Release

Date
02-Jun-21

Analyst
Sana Shameen
sana.shameen@pacra.com
+92-42-35869504
www.pacra.com

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PACRA Assigns Initial Ratings to K-Electric Limited | Islamic Commercial Paper-16 upto PKR 4,000mln

Rating Type Debt Instrument
Current
(02-Jun-21)
Previous
(10-Mar-21)
Action Initial Preliminary
Long Term AA AA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings reflect sustained performance metrics of the company. Amid COVID-19 Pandemic despite unfavorable circumstances company has maintained stability in its turnover as reflected in the published financial statements for FY20 as well as 1QFY21. Business risk profile draws support from growing demand for electricity and continuous improvement across various operational metrics; however, COVID-19 has resulted in various challenges, with additional directives from the Government for power companies, aimed at consumer facilitation. In FY20, the improving trajectory of T&D losses has been affected while growth in unit sent out was also lower than projected. These factors along with a significant increase in finance cost, caused a dip in net profits compared to the preceding year. However, with the economic activity revival post COVID-19 lockdown, units sent-out in Q1’FY2021 increased by 7.3% vis-à-vis corresponding period last year with K-Electric posting a net profit in Q1’FY2021. There was rationalization in the trade debts. A significant jump has been noted in the other receivables, primarily due to outstanding balances and tariff differential claims. Thus, for additional cash and to fulfill working capital requirement company is resorting to short term debt avenues. Till date K-Electric has issued a series of fourteen Islamic Commercial Papers, among these five ICPs (ICP-10, ICP-11, ICP12, ICP13 & ICP14) worth PKR 19.4bln are not yet due for redemption while the rest are redeemed timely. Furthermore, K-Electric has also issued a Sukuk bond of PKR 25bln. The company continued to add to its asset base: expansion was noted in plants, distribution and transmission. There has been increased in payable side that is mainly due to power purchase from CPPA-G/NTDC (800 MW) which as per the agreed mechanism are to be adjusted with TDC.
The performance metrics in the ongoing financial year has shown similar trends with more focus on the production and sale of power units. At the same time, upholding business and financial metrics is of utmost importance. The company has bridged its gap in regulatory timeline for the publication of financial statements.

About the Entity
K-Electric, a vertically-integrated power utility, has been in operations for more than a century. Total installed capacity of K-Electric is 2,267MW, having an arrangement with external power producers for 1,400 MW including 800 MW from the National Grids. At end-Jun20, 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 has issued an Unsecured Privately Placed Islamic Commercial Paper (ICP-16) of PKR 4,000mln to finance the company’s working capital requirements. The tenor of ICP-16 is up to 6 months and carries a profit rate of 6 months KIBOR+60bps. Profit will be realized at the time of maturity. ICP-16 is part of series instruments comprising ICPs which will be utilized for funding K-Electric working capital requirements.

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.