K-Electric Limited - Retail Utility Sukuk - PKR 3bln - TBI

CREDIT RATING REPORT | May-25

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Rating History
Dissemination Date Rating Outlook Action Rating Watch
19-May-25 AA Stable Preliminary -
19-Nov-24 AA Stable Preliminary -
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.

Rating Rationale

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.

Key Rating Drivers

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.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

K-Electric Limited - Retail Utility Sukuk - PKR 3bln - TBI

rating analysis

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Issuer Profile
Profile

K-Electric Limited (the “KE” or the “Company”) was incorporated in 1913 under the Companies Act, 2017 and its shares are listed on the Pakistan Stock Exchange. KE’s current power generation capacity is 2,817MW. In addition to its own generation capacity, KE has arrangements with several IPPs & CPPA-G of 1,600+ MW. KE’s transmission network is interconnected with NTDC and comprises 500kV, 220kV, 132kV, and 66kV transmission lines, 75 grid stations, and 184 power transformers. Being the only vertically integrated company, KE is principally engaged in the generation, transmission and distribution of electric energy under the Electricity Act, 1910 and the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (XL of 1997) (the “NEPRA Act”) read with the NEPRA (Electric Power Supplier) Regulations, 2022 and the NEPRA (Electric Power Procurement) Regulations, 2022.


Ownership

KES Power Limited, a company incorporated in Cayman Islands and owned in parts by Al-Jomaih Group of KSA, NIG of Kuwait and IGCF of Cayman Islands respectively, presently holds 66.40% shareholding in KE while the Government of Pakistan (GoP) maintains a 24.36% stake.


Governance

The overall control of KE vests in 13-member Board of Directors (BoD), including the CEO, where majority is nominated by KES Power Limited (KESP), KE’s holding company. In addition to KESP’s nominees, the Board also comprises of the directors nominated by Government of Pakistan (GoP) and an independent director. However, in October 2022, resignation of 3 directors nominated by KESP resulted in casual vacancies on the Board which cannot be filled by the Company as it is restricted from making change in its current Board composition in view of the following: i)An ad-interim order of the High Court of Sindh was passed on 21 October 2022, in the suit filed by Al Jomaih Power Limited & Denham Investments Limited against IGCF SPV 21 Limited and others whereby no change shall be affected in the present Board of the Company. ii) A directive under section 125 of the Securities Act, 2017 was issued by Securities and Exchange Commission of Pakistan on 08 November 2022 according to which the composition of the current BoD of KE shall not be changed, till further orders of the Commission. Further, Mark Gerard Skelton was appointed by the BOD as its Chairman in August 2022. Mark Skelton is a Managing Director with Alvarez & Marsal’s (A&M’s) Advisory practice in London. He has more than 20 years of experience in corporate finance and advisory. His primary areas of concentration are cross border assignments across different legal jurisdictions and waterfall classes. At present, there are four committees at the board level namely, (i) Audit; (ii) Finance; (iii) Human Resource & Remuneration; and (iv) Board Strategy & Project for ensuring the smooth flow of the Board’s functions. Presence of GoP’s nominee directors and an independent director on the Board and its committees brings depth and perspectives to the Board’s conduct and bodes well for the governance. A. F. Ferguson & Company, Chartered Accountants, are the external auditors of the Company.


Management

KE’s core business operations are divided into three business segments namely Generation, Transmission & Distribution. These are managed through a well-defined hierarchal structure of qualified and experienced professionals. Mr. Moonis Alvi has been spearheading the Company since he took charge as CEO in June 2018 and Mr. Muhammad Aamir Ghaziani has been leading as the CFO of the Company. The Company is guided by four core pillars: i) Thought Leadership, ii) Knowledge-based Learning, iii) Values, and iv) Social Responsibility. KE’s leadership upholds values of integrity, accountability, and continuous improvement, striving to balance economic growth with environmental sustainability. This commitment to its CARES values drives KE's journey toward becoming a growth-oriented, sustainable organization. The Company is also in the process of making its transition towards SAP S4HANA. Keeping customer centricity at the heart of everything, these tech solutions have been deployed to keep all business processes efficient and transparent.


Business Risk

Pakistan's power generation in FY-2024 dropped by 1.9% to 127,160 GWh, marking the second consecutive annual decline, driven by higher electricity costs, rising inflation, and reduced economic activity. Hydropower remained the largest contributor, making up 31% of total generation, followed by RLNG and nuclear power, each accounting for 19%. Local coal-based power plants contributed 12%, with the rest supplied by other thermal sources, including imported coal. A small portion comes from renewable resources like wind and solar. KE is the only vertically integrated power utility company responsible for the generation, transmission, and distribution of electricity in Karachi and adjacent areas of Sindh and Balochistan. KE has a registered customer base of ~3.7mln at end-June'24, of which 84.4% constitute residential consumers, 14.9% commercial, Industrial 0.6%, and the remaining comprises of agricultural and public consumers. KE reduced its Transmission and Distribution (T&D) loss to15.3% in FY23 and is actively working to reduce these losses, moving forward. Drawing from previous MYT experiences, KE has filed separate tariff petitions for its business segments (Generation, Transmission, Distribution and Supply). The Generation Tariff has been approved by NEPRA for all its power plants for the period post June 2023. The Multi Year Tariffs for Transmission, Distribution and Supply businesses for the period FY 2024 to 2030 are currently under determination of NEPRA and are fundamental for preparation of Financial Statements for the period post June 30, 2023.


Financial Risk

KE manages its working capital requirements through a mix of internally generated cash and short term borrowings. Post signing of the power purchase agreement with CPPA-G whereby KE is now authorized to procure upto 2,000 MW of electricity from NTDC, KE has also signed another agreement with GoP for Tariff Differential Subsidy whereby KE can net off the NTDC invoices with the subsidy amount and pay only the differential amount. The arrangement has been secured via a master collection account dedicated for payments to CPPA-G. As per management, the actual position of cashflows and the debt profile of the Company is in a comfortable position and it's expected that the same trend will continue going forward. The approval of the Investment Plan of PKR 392 billion by NEPRA for rehabilitation of the transmission and distribution network of KE is expected to contribute to a surge in debt post finalization of MYT. However, KE has MCA structures that are already used to pay back long term lenders and they will continue to do the same in the future.


Instrument Rating Considerations
About the Instrument

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


Relative Seniority/Subordination of Instrument

The sukuk is unsecured and in the hierarchy of creditors, the investors shall rank after the secured lenders/investors of the Company.


Credit Enhancement

The instrument is unsecured.
 
 

May-25

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K-Electric Limited - Retail Utility Sukuk - PKR 3bln - TBI

rating scale

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May-25

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K-Electric Limited - Retail Utility Sukuk - PKR 3bln - TBI

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
  2. Restrictions
    1. No director, officer, or employee of PACRA communicates the information acquired by him for use for rating purposes to any other person, except where required under law to do so. (Chapter III; 10-(5))
    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
    2. PACRA uses due care in the preparation of this Rating Report. Our information has been obtained from sources we consider to be reliable, but its accuracy or completeness is not guaranteed. PACRA does not, in every instance, independently verify or validate information received in the rating process or in preparing this Rating Report. (Clause 11-(A)(p))
    3. PACRA prohibits its employees and analysts from soliciting money, gifts, or favors from anyone with whom PACRA conducts business. (Chapter III; 11-A-(q))
    4. PACRA ensures before the commencement of the rating process that an analyst or employee has not had a recent employment or other significant business or personal relationship with the rated entity that may cause or may be perceived as causing a conflict of interest. (Chapter III; 11-A-(r))
    5. PACRA maintains the principle of integrity in seeking rating business. (Chapter III; 11-A-(u))
    6. PACRA promptly investigates in the event of misconduct or a breach of the policies, procedures, and controls, and takes appropriate steps to rectify any weaknesses to prevent any recurrence, along with suitable punitive action against the responsible employee(s). (Chapter III; 11-B-(m))
  4. Independence & Conflict of Interest
    1. PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has no influence on PACRA’s opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity, and independence of its ratings. Our relationship is governed by two distinct mandates: i) rating mandate - signed with the entity being rated or issuer of the debt instrument, and ii) fee mandate - signed with the payer, which can be different from the entity.
    2. PACRA does not provide consultancy/advisory services or other services to any of its customers or their associated companies and associated undertakings that are being rated or have been rated by it during the preceding three years, unless it has an adequate mechanism in place ensuring that the provision of such services does not lead to a conflict of interest situation with its rating activities. (Chapter III; 12-2-(d))
    3. PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA. (Chapter III; 12-2-(f))
    4. PACRA ensures that the rating assigned to an entity or instrument is not affected by the existence of a business relationship between PACRA and the entity or any other party, or the non-existence of such a relationship. (Chapter III; 12-2-(i))
    5. PACRA ensures that the analysts or any of their family members shall not buy, sell, or engage in any transaction in any security which falls in the analyst’s area of primary analytical responsibility. This clause, however, does not apply to investments in securities through collective investment schemes. (Chapter III; 12-2-(l))
    6. PACRA has established policies and procedures governing investments and trading in securities by its employees and for monitoring the same to prevent insider trading, market manipulation, or any other market abuse. (Chapter III; 11-B-(g))
  5. Monitoring and Review
    1. PACRA monitors all the outstanding ratings continuously, and any potential change therein due to any event associated with the issuer, the security arrangement, the industry, etc., is disseminated to the market immediately and in an effective manner after appropriate consultation with the entity/issuer. (Chapter III; 17-(a))
    2. PACRA reviews all the outstanding ratings periodically on an annual basis. Provided that public dissemination of annual review and in an instance of change in rating will be made. (Chapter III; 17-(b))
    3. PACRA initiates an immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating. (Chapter III; 17-(c))
    4. PACRA engages with the issuer and the debt securities trustee to remain updated on all information pertaining to the rating of the entity/instrument. (Chapter III; 17-(d))
  6. Probability of Default
    1. PACRA’s Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e., probability). PACRA’s transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be obtained from PACRA’s Transition Study available at our website. (www.pacra.com) However, the actual transition of rating may not follow the pattern observed in the past. (Chapter III; 14-3(f)(vii))
  7. Proprietary Information
    1. All information contained herein is considered proprietary by PACRA. Hence, none of the information in this document can be copied or otherwise reproduced, stored, or disseminated in whole or in part in any form or by any means whatsoever by any person without PACRA’s prior written consent.

May-25

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K-Electric Limited - Retail Utility Sukuk - PKR 3bln - TBI

Regulatory and Supplementary Disclosure

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Nature of Instrument Size of Issue (PKR mln) Tenor Security Issue Agent Book Value of Security Assets (PKR mln)
Finance Facility PKR 2,100 million 7 years secured N/A ( 75% of the principal amount outstanding)PKR 1575mln
Name of Issuer Multinet Pakistan (Private) Limited
Issue Date 11-Aug-22
Maturity Up to 7 years (including the Grace/Availability Period)
Call Option Nil
Profit Rate 3MK + 75bps

Nature of Instrument, Size of Issue (PKR mln), Tenor, Security , Issue Agent, Book Value of Security Assets (PKR mln)

Sr. Due Date Principal Opening Principal Markup/Profit Rate (3MK + 75bps) Markup/Profit Payment Principal Payment Total Principal Outstanding
PKR (mln) PKR
Issue Date 12-Aug-22 1,038,026,180 0 0 1,038,026,180
1 12-Nov-22 1,038,026,180 16.62% 43,484,481 0 43,484,481 1,038,026,180
2 12-Feb-23 1,038,026,180 16.48% 43,118,186 0 43,118,186 1,038,026,180
3 12-May-23 1,038,026,180 18.89% 47,812,055 0 47,812,055 1,038,026,180
4 12-Aug-23 1,038,026,180 22.74% 59,496,817 0 59,496,817 1,038,026,180
5 12-Nov-23 1,038,026,180 23.69% 61,982,392 16,867,925 78,850,317 1,021,158,255
6 12-Feb-24 1,021,158,255 22.36% 57,551,920 16,867,925 74,419,845 1,004,290,330
7 12-May-24 1,004,290,330 22.20% 54,974,578 16,867,925 71,842,503 987,422,405
8 12-Aug-24 987,422,405 22.52% 56,048,801 16,867,925 72,916,726 970,554,480
9 12-Nov-24 970,554,480 19.81% 48,461,779 29,843,253 78,305,032 940,711,227
10 12-Feb-25 940,711,227 14.51% 34,404,773 29,843,253 64,248,026 910,867,974
11 12-May-25 910,867,974 12.65% 28,095,910 29,843,253 57,939,163 881,024,721
12 12-Aug-25 881,024,721 12.65% 28,091,413 29,843,253 57,934,666 851,181,468
13 12-Nov-25 851,181,468 12.65% 27,139,863 42,818,580 69,958,443 808,362,888
14 12-Feb-26 808,362,888 12.65% 25,774,595 42,818,580 68,593,175 765,544,308
15 12-May-26 765,544,308 12.65% 23,613,371 42,818,580 66,431,951 722,725,728
16 12-Aug-26 722,725,728 12.65% 23,044,060 42,818,580 65,862,640 679,907,148
17 12-Nov-26 679,907,148 12.65% 21,678,793 49,306,243 70,985,036 630,600,905
18 12-Feb-27 630,600,905 12.65% 20,106,667 49,306,243 69,412,910 581,294,662
19 12-May-27 581,294,662 12.65% 17,930,153 49,306,243 67,236,396 531,988,419
20 12-Aug-27 531,988,419 12.65% 16,962,414 49,306,243 66,268,657 482,682,176
21 12-Nov-27 482,682,176 12.65% 15,390,288 58,388,973 73,779,261 424,293,203
22 12-Feb-28 424,293,203 12.65% 13,528,560 58,388,973 71,917,533 365,904,230
23 12-May-28 365,904,230 12.65% 11,413,205 58,388,973 69,802,178 307,515,257
24 12-Aug-28 307,515,257 12.65% 9,805,103 58,388,973 68,194,076 249,126,284
25 12-Nov-28 249,126,284 12.65% 7,943,375 62,281,571 70,224,946 186,844,713
26 12-Feb-29 186,844,713 12.65% 5,957,531 62,281,571 68,239,102 124,563,142
27 12-May-29 124,563,142 12.65% 3,842,176 62,281,571 66,123,747 62,281,571
28 12-Aug-29 62,281,571 12.65% 1,985,844 62,281,571 64,267,415 0
809,639,100 1,038,026,180 1,847,665,280

May-25

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