Karachi, August 25, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has assigned preliminary rating of A-1+ (Single A One Plus) to K-Electric Limited’s (KE) proposed Islamic Commercial Paper (ICP-10) issue of up to Rs. 4.5billion. The ICP-10 will have bullet repayment at maturity and will have a tenor of 6 months. The proceeds of the issue will be utilized for KE’s working capital requirements.
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-a-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 over the last 3 years 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