Press Release
VIS Assigns Preliminary Instrument Rating to the Proposed Short-Term Sukuk (STS-27) of K-Electric Limited
Lahore, July 02, 2024: VIS Credit Rating Company Limited (VIS) has outstanding entity ratings of ‘AA/A-1+’ (Double A/A One Plus) assigned to K-Electric Limited (KE). In lieu of the same, VIS has assigned preliminary rating of ‘A-1+’ to KE’s proposed Short-Term Sukuk (STS-27). Short-term rating of ‘A-1+’ reflects 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 Government of Pakistan’s short-term obligations.
KE plans to issue a rated, unsecured, privately placed Short Term Sukuk (STS-27) instrument of up to Rs. 5b. The tenor of STS-27 is up to 6 months from the date of drawdown and will be redeemed in bullet at maturity. The proceeds of the issue will be utilized for KE’s working capital requirements.
The assigned ratings to the issuer recognize the strategic importance of KE, a vertically integrated utility Company that has distribution rights in Karachi and adjoining areas of Sindh and Baluchistan. KE remains engaged with NEPRA for approval of the Multi-Year Tariff (MYT) for the control period FY24-30. However, given that the proposed tariff structure is yet to be approved, the financial statements of the Company for the nine months period ended on 31 March 2024 cannot be finalized within the stipulated timeline. The Company has duly informed apex regulators, namely, SECP and NEPRA of the same. Additionally, KE’s Distribution & Supply Licenses have been renewed by NEPRA for the next 20 years, effective from 19th January 2024. In addition to, KE’s investment plan of Rs. 392b has been approved by the regulator, and KE has also executed several agreements with the government to resolve long-standing disputes. Furthermore, KE’s Power Acquisition Programme (PAP) has recently been approved by NEPRA for the period FY 2024-2028 which focuses on comprehensive plan to ensure a stable power supply by integrating renewable energy, local fuel, and power off-take from the National Grid.
During FY23, in the backdrop of rising socio-political instability and macroeconomic challenges which include policy rate hike, revenues and profitability indicators of the company were severely impacted. However, with sufficient working capital lines, the Company is strongly positioned to service its short-term sukuk obligations. The Company has been issuing short-term sukuk instruments since February 2022, and to date, they have successfully issued 26 instruments. Out of these, 21 instruments have been redeemed promptly upon maturity and 5 are currently outstanding. The STS rating is contingent on the Company's favorable outcome of operational improvements and tariff petition as expected to support liquidity.
For further information on this ratings announcement, please contact at 042-35723411-13 or email at info@vis.com.pk.
Applicable Rating Criteria: Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
Rating The Issue
https://docs.vis.com.pk/docs/Rating-the-Issue-Aug-2023.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf
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