PACRA updates entity ratings of K-Electric

June 22, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has updated the entity ratings of K-Electric Limited (PSX: KEL) at "AA" for the long term and "A1+" for the short term with a stable outlook forecast, a latest press release issued by PACRA showed.

The ratings incorporate the strategic importance of KEL 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, KEL reported a net loss of Rs39.39 billion (9MFY22: Profit of Rs1.49bn).

The loss is mainly attributable to macroeconomic factors including the reduction in sent-out units on the back of a slow economy and increase in fuel prices.

Furthermore, the consistent devaluation of the Pak Rupee resulted in huge exchange losses combined with the increase in debt servicing costs because of the increase in policy rates.

The company operates under a 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 & debt coverage plummeted to 2.4x & 0.5x (FY22: 6x & 1.3x) respectively.

Moreover, 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.

KEL has witnessed the synchronization of 900 Megawatt (MW) RLNG-fired power project (BQPS-III). Both units of the BQPS III project have been successfully commissioned.

In addition, the company is actively pursuing to expedite the determination of pending quarterly tariff variation for costs that have been determined by the authority.

KE expects a sustainable cost-reflective tariff with a robust adjustments mechanism which will have a positive impact on its profitability going forward.

The rating watch status reflects the ongoing developments regarding the approval of tariffs by the National Electric Power Regulatory Authority (NEPRA), as requested by the company for its generation, transmission, distribution, and supply businesses.

The outcome of the tariff determination exercise, as well as its impact on the Company, will be crucial factors in determining and maintaining the validity of the ratings.

It is of utmost importance for the integrity of the ratings that this process reaches a timely resolution.

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