PACRA assigns initial rating of 'AA' to KEL's debt instrument

February 15, 2024 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has initially rated K-Electric Limited's (PSX: KEL) debt instrument as "AA" for the long term and 'A1+' for the short term, latest press release issued by PACRA showed.

The debt instrument is worth Rs5 billion and the entity has allocated a stable outlook forecast to it.

The ratings incorporate the strategic importance of KEL as the only vertically integrated power utility company in Pakistan which means it is responsible for generation, transmission, as well as distribution of electricity in Karachi and other adjoining areas of Sindh and Balochistan.

During FY23, KE reported a net loss of Rs30.89bn which was a fallout from the previous year which reported a profit of Rs8.5bn in FY22.

The loss is mainly attributed to slowing down of the economy and increase in fuel prices which resulted in a decrease in KE’s sent-out units.

Furthermore, the consistent devaluation of Pak Rupee throughout the year resulted in a huge exchange loss which was combined with the increase in debt servicing cost because of increase in policy rates.

Since the company operates under a regulated MYT by the NEPRA, there was no adjustment made in the tariff for changes in sent-out and policy rates.

Moreover, the working capital also remained a challenge because of delayed payments from the government which resulted in enhanced borrowings ultimately curtailing the company’s profitability.

As a result, finance cost coverage & debt coverage plummeted to 2.4x and 0.6x (FY22: 6x and 1.3x) respectively.

Leveraging of the company also increased to 54.8% (FY22: 53%) and is expected to increase further on account of the board approved Investment Plan for the improvement of transmission and distribution segments.

KEL secures its payments against long-term borrowings as the Company dedicates funds in its MCA to meet its obligations in a timely manner.

The company has made continuous improvements in its performance metrics which include a reduction in its T&D losses & improvement in its recovery ratio.

KEL has also successfully synchronized both units of its 900MW RLNG-fired power project (BQPS-III) whereby both units have successfully been commissioned.

In the ongoing tariff renewal process of KE, NEPRA has recently approved the grant of both Distribution and Supplier License to KE on January 19, 2024 for a period of 20 years.

However, financial reports for the first quarter and half-yearly of the FY24 are currently pending, primarily due to the recent approval of the tariff.

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