August 1, 2019: VIS Credit Rating Company Limited (VIS) has assigned preliminary rating of A-1 (Single A One) to K-Electric Limited’s (KE) proposed Islamic Commercial Paper (ICP-A) issue of up to Rs. 8 billion (Including a green shoe option of up to Rs. 3billion).
The ICP-A will have a tenor of 6 months. Instrument is unsecured, non-convertible and redeemable at maturity date in bullet payment. The proceeds of the issue will be utilized for KE’s working capital requirements.
KE has been assigned entity rating of AA/A-1 (Double A/A-One).
The assigned rating recognizes 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.
Business risk profile draws support from growing demand for electricity (units sold have increased at a CAGR of 4.57% over the last 5 years) and continuous improvement across various operational metrics including reduction in transmission & distribution and aggregate technical and commercial losses.
Rating incorporates KE’s sound financial profile and sizeable revenue base with net turnover from sale of energy amounting to Rs. 168.6b in FY17.
While remaining within manageable levels, leverage indicators are expected to continue to increase given the significant capital expenditure being incurred and planned over the rating horizon.
Gearing levels are likely to peak at around 1.1 (x) end-FY20 but are than projected to decline to 0.7(x) by end-FY23. Post implementation of the revised Multiyear Tariff, cash flow coverage of outstanding debt remains within manageable levels, and debt servicing coverage ratio is expected to be satisfactory at over 1.5(x) over the rating horizon.
