Lahore, VIS Credit Rating Company Limited (VIS) has assigned a preliminary rating of 'A-1+' to K-Electric Limited's (KE) proposed Short-Term Sukuk (STS-25). This rating reflects the highest certainty of timely payment, indicating that KE's short-term liquidity, including internal operating factors and access to alternative sources of funds, is robust and nearly risk-free. It is just below the risk-free Government of Pakistan's short-term obligations.
According to VIS Credit Rating Company Limited, KE plans to issue a rated, unsecured, privately placed Short-Term Sukuk (STS-25) instrument of up to Rs. 5 billion, inclusive of a green shoe option of Rs. 1 billion. The tenor of STS-25 is up to six months from the date of drawdown and will be redeemed in full upon maturity. The proceeds from the issuance will be used to meet KE's working capital requirements.
The rating recognizes the strategic importance of KE as a vertically integrated utility company with distribution rights in Karachi and adjoining areas of Sindh and Balochistan. KE is currently engaged with the National Electric Power Regulatory Authority (NEPRA) to approve its Multi-Year Tariff (MYT) for the control period FY24-30. However, since the proposed tariff structure has not yet received approval, KE has been unable to finalize its quarterly financial statements during the current year. The company has duly informed the Securities and Exchange Commission of Pakistan (SECP) and NEPRA about the delay. Additionally, KE’s Distribution and Supply Licenses have been renewed by NEPRA for the next 20 years, effective from January 19, 2024.
KE’s planned investment of Rs. 392 billion has also been recently approved by the regulator, and the company has signed several agreements with the government to resolve long-standing disputes. Despite rising socio-political instability and macroeconomic challenges, KE is well-positioned to meet its short-term sukuk obligations due to sufficient working capital lines. Since February 2022, KE has successfully issued 24 short-term sukuk instruments, with 21 redeemed upon maturity and three currently outstanding.
The STS-25 rating is contingent on KE's successful operational improvements and the approval of the tariff petition, which are expected to support the company's liquidity.