Press Release

VIS Credit Rating Company assigns rating to proposed Short Term Sukuk (STS-17) of K-Electric Limited

Karachi, May 11, 2023: VIS Credit Rating Company Limited (VIS) has outstanding entity ratings of ‘AA/A-1+’ (Double A/A One Plus) to K-Electric Limited (KE). In lieu of the same, VIS has assigned preliminary rating of A-1+ (Single A-One Plus) to KE’s proposed Short Term Sukuk (STS-17). 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 an unsecured, privately placed STS (STS-17) issue of up to Rs. 5 billion. The tenor of STS-17 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 rating to the issuer recognizes 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. In the backdrop of rising socio-political instability, devastating floods and macroeconomic challenges, revenues and profitability indicators of the Company were impacted during 1HFY23. This, along with conservative recording of impairment loss on receivables and delay in adjustments of fuel adjustment surcharge stressed the bottom line. Further, increase in effective borrowing rate to 17% vis-à-vis 9.4% in the preceding period, has escalated the finance cost. Resultantly, the company has suffered losses on net basis in 1HFY23. The Company is focusing on improvements on operational fronts to curtail losses. In addition, the Company is actively pursuing to expedite the determination of pending quarterly tariff variations. Meanwhile, with negative cash conversion cycle backed by much extended days of payables, and sufficient working capital lines, the Company is strongly positioned to service its short-term sukuk obligations.

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



Sara Ahmed
Director

Applicable Rating Criteria: Industrial Corporate (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf

Rating The Issue (July 2020)
https://docs.vis.com.pk/docs/Notchingtheissue202007.pdf

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2023 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .