PACRA Updates the Ratings of K-Electric Limited - Retail Utility Sukuk - PKR 3bln - TBI

The ratings reflect K-Electric Limited’s (“KE” or “the Company”) strategic position in powering Karachi - Pakistan's financial hub and remains committed to ensuring an uninterrupted power supply to the city. KE is the only vertically integrated power utility in Pakistan, managing all key areas – Generation, Transmission, Distribution and Supply – ensuring energy delivery to customers within its licensed areas. KE is progressing on its transformation and renewable energy goals. It secured competitive tariffs for the 100 MW Bela and 50 MW Winder projects, with NEPRA directing the lowest bidder to file a tariff petition. Bid evaluations for the 220 MW hybrid and 270 MW Sindh Solar projects have been submitted to NEPRA. These efforts support energy diversification and reduced reliance on imports, while also facilitating investor participation in the sector. As part of regulatory updates, KE has submitted separate tariff petitions for Generation, Transmission, Distribution Network, and Supply. The investment plan and Generation tariff were approved by NEPRA last year. Currently, only the Transmission, Distribution Network, and Supply petitions are pending approval. The hearings for these petitions were conducted last year. Consequently, the Company has been unable to finalize its post FY23 financial statements within the standard timeline. KE has formally informed its key regulators—NEPRA, SECP, and PSX—about the delay and is actively engaging with them to expedite the approval process, with the aim of circulating the financial accounts soon. Moreover, to manages short-term liquidity challenges arising from timing mismatches between payments and receipts from power purchasers, KE plans to issue its first Unsecured, Rated, Retail Listed Short-Term Utility Sukuk (“Retail Sukuk” or “Sukuk”). The Sukuk will be offered to investors through a priority allocation with KE consumers receiving preferential treatment as the primary target market. In addition to the standard profit payment method of payment via bank transfer, this sukuk has a unique feature where investors will also have the option to receive their profit payments as adjustments to their monthly KE utility bill, given that they are KE consumers. The instrument will have a tenor of one year, with the principal amount to be repaid at maturity.
The outcome of the MYT and its impact on KE are critical to the validity of the assigned ratings. Timely completion of the process is essential for evaluating KE’s financial stability and operational performance. Ensuring financial discipline, particularly with the Sukuk issuance, remains key.

About the Entity
KE, a publicly listed company in Pakistan, was established in 1913 as KESC and privatized in 2005. Its majority shares (66.40%) are owned by KES Power, a consortium with international investors, while the Government of Pakistan holds 24.36%. The remaining shares are publicly traded as free float.

About the Instrument
KE is currently in the process of issuing a Retail Sukuk of up to PKR 3,000 million, which includes a green shoe option of up to PKR 1,000 million. The issuance is structured to take place in two phases. The first phase which is the Pre-IPO stage, has been successfully concluded, with KE raising PKR 1,000 million. The Company is now preparing to launch the second phase, which is the IPO stage which is anticipated to begin in mid-June 2025, subject to necessary approvals from the regulators. During this phase, KE aims to raise up to PKR 2,000 million.