Karachi, K-Electric Limited (KE), a key player in Pakistan’s power sector, has been assigned an initial rating by The Pakistan Credit Rating Agency Limited (PACRA) for its latest financial instrument. This rating comes amidst a challenging economic environment for KE, marked by a significant net loss in FY23 due to macroeconomic factors and operational hurdles.
According to The Pakistan Credit Rating Agency Limited, KE's strategic importance as a vertically integrated power utility responsible for electricity generation, transmission, and distribution in Karachi and adjoining areas cannot be understated. However, KE reported a net loss of PKR 30.89 billion in FY23, a stark contrast to the profit of PKR 8.5 billion in FY22. This loss was primarily due to a reduction in sent-out units due to a slowing economy, rising fuel prices, and significant exchange losses from the devaluation of the Pakistani Rupee. Additionally, increased debt servicing costs, due to higher policy rates, have impacted the company's financials.
KE operates under a regulated tariff, which currently does not adjust for changes in sent-out units and policy rates. This, combined with delayed payments from the government, has led to increased borrowings and reduced profitability. As a result, finance cost coverage and debt coverage ratios have declined significantly.
The company's leveraging has increased to 54.8%, up from 53% in FY22, and is expected to rise further due to an approved investment plan aimed at improving transmission and distribution segments. Despite these challenges, PACRA notes KE's ability to meet its obligations timely, particularly for long-term borrowings, by earmarking funds in Master Collection Accounts (MCA). The agency also acknowledges KE's sustained operational improvements, including a reduction in transmission and distribution (T&D) losses, though recovery ratios need further improvement.
KE recently commissioned the 900MW RLNG-fired BQPS-III power project, enhancing its generation capacity. Looking ahead, KE is in the process of renewing its tariff and has filed separate tariffs for its various business segments, aiming for better alignment with regulatory frameworks and sector developments from FY 24 to FY30.
About K-Electric: K-Electric has over a century of operation, with a total installed capacity of 2,817MW. It has arrangements with National Grids and IPPs for an additional 1,650+ MW. KES Power Limited holds a 66.4% share in KE, with the Government of Pakistan owning 24.4%. The company, led by CEO Mr. Moonis Alvi since 2008, is supported by an experienced team.
About the Instrument: KE issued the PPSTS-18 sukuk on August 9, 2023, amounting to PKR 5 billion to finance working capital requirements. This sukuk, with a six-month tenure and a profit rate of up to 6MK+30bps, replaces the previously redeemed PPSTS-13.