The Pakistan Credit Rating Agency Limited
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Saadat Mirza

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PACRA Assigns Preliminary Ratings to K-Electric Limited | Islamic Commercial Paper-21 upto PKR 4,500mln

Rating Type Debt Instrument
Action Preliminary
Long Term AA
Short Term A1+
Outlook Stable
Rating Watch -

The ratings reflect sustained performance metrics of the company. Amid COVID-19 Pandemic despite unfavourable circumstances company has maintained stability in its turnover as reflected in the published financial statements for FY20 as well as 3QFY21. 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. Nonetheless, with improved macroeconomic environment post COVID- 19 lockdown, along with sizeable investments, the Company continued to show strong operational performance. As a result, during the 3QFY21, units sent out grew by 7.2% along with a 6.2% increase in units billed. Driven by these operational improvements, the Company’s gross profit increased by 25%. The company continued to add to its asset base: expansion was noted in plants, distribution and transmission. The Company is pursuing its 900 MW RLNG project on fast-track basis. In addition to this additional supply of 450MW from National Grid has also been achieved through successful completion of rehabilitation works at KDA- Jamshoro lines.
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.

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 National Grids for 1,400 MW. At end-March21, 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 another unsecured Privately Placed Islamic Commercial Paper (ICP-21) of PKR 4,500mln, in Sep'21, to finance the company’s working capital requirements. The tenor of ICP-21 is up to 6 months and carries a profit rate of 6 months KIBOR+30bps. Profit will be realized at the time of maturity.

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.