February 26, 2019 (MLN): VIS Credit Rating Company Limited (VIS) (formerly known as JCR-VIS) has assigned preliminary rating of A-1 (Single A One) to K-Electric Limited’s (KE) proposed second Islamic Commercial Paper (ICP-2) issue of up to Rs.10billion (Including a green shoe option of up to Rs.3b).
As per a press release issued by the credit rating company, “The ICP-2 will have bullet repayment at maturity and will have a tenor of 6 months. The proceeds of the issue will be utilized for KE’s working capital requirements.”
VIS has assigned entity rating of ‘AA/A1’ (Double A/A One) to KE while ratings have been placed on ‘Rating Watch-Developing’ status owing to pending notification of Company’s Multi Year Tariff (MYT).
Furthermore, KE has received fresh public announcement of intention to acquire 66.4% stake from Shanghai Electric Power (SEP) on 24th December 2018. Financial profile and ownership structure of SEP along with expected synergies in various business and operational areas will have positive implications for KE, claims VIS.
“The assigned ratings recognize the strategic importance of KE, a vertically integrated utility company, that has exclusive distribution rights in its service area i.e. Karachi and adjoining areas of interior Sind and Baluchistan.”
According to the press document, business risk profile draws support from growing demand for electricity and continuous improvement across various operational metrics including reduction in transmission & distribution losses, while overall financial profile remains sound.
“However, gearing levels will increase and coverage of the outstanding debt will decline as the Company forges ahead with its investment plans; the same is expected to improve once increase in cash flows materializes. VIS expects debt servicing to remain adequate over the rating horizon.”