Press Release

Ratings of K-Electric Limited

Karachi, April 14, 2023: VIS Credit Rating Company Ltd. has reaffirmed the entity ratings of K-Electric Limited (KE) at AA/A-1+ (Double A/ A One-Plus). Medium to long-term rating of ‘AA’ signifies high credit quality; protection factors are strong. Risk is moderate but may vary slightly from time to time because of economic conditions. Short-term rating of A-1+ denotes highest certainty of timely payment; short-term liquidity including internal operating factors and/or access to alternative sources of funds is outstanding and safety is just below risk-free GoP’s short term obligations. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on April 29, 2022.

The assigned ratings incorporate 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 Sindh and Baluchistan, and will remain dependent on continuation of the same. KE’s current multi-year tariff (MYT) determination is expiring in June 2023. In the backdrop of learnings from the current MYT, and the ongoing changes in power sector KE has filed petition for separate tariffs for each business segment. Furthermore, discussions for execution of inter-connection agreement (ICA) and tariff differential subsidy (TDS) between KE and National Transmission and Distribution Company (NTDC)/GoP are now in the advanced stages of finalization, whereas power purchase agency agreement (PPAA) between KE and Central Power Purchasing Agency (CPPA) is already finalized.

Rising socio-political instability, devastating floods and macroeconomic challenges have negatively impacted the revenues and profitability of the company during 1HFY23. The units sent-out dropped by 5.7% due to closure of industrial units and overall economic slowdown in 1HY23 vis-à-vis CPLY. The Company operates under regulated tariff, and as per current MYT, no adjustment is provided in the tariff for changes in sent-out and policy rates. In addition, the Company had to book sizeable provisioning against doubtful trade debts as all-time high inflation continuous to impact the consumers’ capacity to pay. Sharp devaluation of local currency led to considerable foreign currency exchange loss in 1HY’23. Furthermore, steep rise in effective borrowing coupled with higher borrowing levels mainly owing to non-payment of dues by the Government, has escalated the finance cost. Resultantly, the company has suffered losses on net basis during 1HFY23. Meanwhile, the Company remains committed to tackle these challenges via actively pursuing to expedite the determination of pending quarterly tariff variations and focusing extensively on further operational improvements which is reflected in improvement in various operational metrices over time.

Capitalization indicators of the Company have continued to swell, indicating higher debt utilization. Going forward, despite projected augmentation in equity in line with profit retention, gearing is projected to remain high as additional long-term financing would be obtained mainly to fund planned investments. Ratings derive comfort by the fact that all conventional and Islamic long-term financing of the Company are secured by hypothecation charge over specific consumers’ receivables and specific collection account. Meanwhile, projected improvement in profitability profile and cash flow coverages while maintaining leverage indicators at manageable level are key rating sensitivities.

For further information on this rating announcement, please contact Ms. Tayyaba Ijaz, CFA (042-35723411-13, Ext. 8005) and/or the undersigned at 021-35311861-4 (Ext. 207) or email at
Sara Ahmed

Applicable rating criterion: Corporates (August 2021)

Rating The Issue (November 2021)

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