Lahore, August 30, 2023 (PPI-OT): The ratings incorporate the strategic importance of K-Electric Limited, (“the Company” or “KE”) being a vertically integrated power utility, responsible for the generation, transmission, and distribution of electricity in Karachi and adjoining areas of Sindh and Balochistan. During 9MFY23, KE reported a net loss of PKR 39.39bln (9MFY22: Profit of PKR 1.49bln). The loss is mainly attributable to macroeconomic factors including the reduction in sent-out units on the back of slow economy and increase in fuel prices. Furthermore, the consistent devaluation of Pak Rupee resulted in huge exchange loss combined with the increase in debt servicing cost because of the increase in policy rates. 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. Working Capital also remains a challenge because the delayed payments from the government resulted in enhanced borrowings ultimately curtailing profitability.

Consequently, finance cost coverage and debt coverage plummeted to 2.4x and 0.5x (FY22: 6.0x and 1.3x) respectively. Leveraging of the company also increased to 60% (FY22: 53%) and it is expected to increase further on account of the Board approved Investment Plan for the improvement of transmission and distribution segments. The comfort for the timely repayment of long-term borrowings is available as KE marks the funds in Master Collection Accounts (MCA) ensuring the viability to meet its obligations timely. Support has also been drawn from the sustained, rather improved performance metrics of the Company, owing to continuous improvement across various operational metrics including a reduction in T and D losses however, recovery ratio needs to improve going forward.

KE has witnessed synchronization of 900MW RLNG-fired power project (BQPS-III). Both units of the BQPS III project have been successfully commissioned. Going forward, as part of tariff renewal process, KE has filed separate tariffs for Generation, Transmission, Distribution and Supply businesses for better alignment with the regulatory framework and sector developments as well as to provide greater transparency for next control period from FY 24 to FY30.

For more information, contact:

Analyst,

The Pakistan Credit Rating Agency Limited (PACRA)

Awami Complex, FB1, Usman Block New Garden Town,

Lahore, Pakistan

Tel: +92-42-5869504-6

Fax: +92-42-5830425

Email: [email protected]

Website: www.pacra.com