Ratings of K-Electric Limited

Lahore, October 26, 2020 (PPI-OT):VIS Credit Rating Company Limited (VIS) has finalized preliminary rating of A-1+ (Single A One Plus) to K-Electric Limited’s (KE) proposed Islamic Commercial Paper (ICP-13) issue of Rs. 4.0billion; previous rating action was announced on October 12, 2020. VIS has also finalized preliminary rating of A-1+ (Single A One Plus) to K-Electric Limited’s (KE) proposed Islamic Commercial Paper (ICP-10) issue of Rs. 4.5billion; previous rating was announced on August 25, 2020. Furthermore, VIS has reaffirmed rating of AA+ (Double A Plus) to Sukuk (Sukuk 4 amounting to Rs. 22b) issued by KE; previous rating action was announced on October 14, 2019.

The ICP-13 and ICP-10 will have bullet repayments at maturity and has a tenor of 6 months. Sukuk 4 was issued by KE in FY15 and funds raised from this Sukuk amounted to Rs. 22b. It has a tenor of 7 years inclusive grace period of 2 years. It is structured as a diminishing musharaka arrangement and carries a profit rate of 3 month KIBOR plus 1%.

VIS has assigned entity rating of ‘AA/A-1+’ (Double A/A One Plus) to KE. The assigned ratings recognize the strategic importance of KE, a vertically integrated utility company, that has exclusive distribution rights in its service area i.e. Karachi and adjoining areas of interior Sind and Baluchistan. 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 and has impacted improving trajectory of T and D losses while growth in unit sent out was also lower than projected. Going forward, based on the planned initiatives, the company remains resolute in recuperating the operational improvements, which will resultantly have a positive impact on the company’s financials. Continuity in improvement in various operational performance metrics is considered important from a ratings perspective

Given the decline in tariff, EBITDA is expected to be lower vis-à-vis historical levels in the earlier years. However, EBITDA is projected to depict healthy growth over the MYT period on the back of higher units sent out and continuous reduction in T and D losses which is expected to beat NEPRA benchmark in later years. Quantum of improvement in EBITDA and profitability will depend on growth in units sent out, extent of reduction in T and D losses vis-à-vis NEPRA benchmark, amount of write-off claims. Finance cost is higher during 1HFY20 on account of increase in interest rates and debt levels which have increased significantly due to additional working capital requirements and capital expenditure being incurred on generation, transmission and distribution front.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/

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