VIS assigns ratings to K-Electric’s Islamic Commercial Paper of up to Rs 4 bln

February 11, 2020: VIS Credit Rating Company Limited (VIS) has assigned preliminary rating of A-1+ (Single A-One Plus) to K-Electric Limited’s (KE) proposed Islamic Commercial Paper (ICP-5) issue of up to Rs. 4billion.

The ICP-5 will have a tenor of 6 months which will be utilized for funding KE’s working capital requirements.

KE has been assigned entity rating of AA/A-1+ (Double A/A-One Plus). 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 Sind and Baluchistan.

Business risk profile draws support from growing demand for electricity and continuous improvement across various operational metrics including a reduction in transmission & distribution and aggregate technical and commercial losses.

The overall financial profile is expected to remain adequate during the rating horizon. With the NEPRA’s determination of monthly FCA for the period July 2016 to June 2019 and quarterly tariff variations for the period July 2016 to March 2019, the working capital cycle of the Company is expected to improve.

Given the decline in tariff, EBITDA is expected to be lower vis-à-vis historical levels in the earlier years. However, EBITDA is projected to depict healthy growth over the MYT period on the back of higher units sent out and continuous reduction in T&D losses which is expected to beat the NEPRA benchmark in later years.

Quantum of improvement in EBITDA and profitability will depend on growth in units sent out, the extent of reduction in T&D losses vis-à-vis NEPRA benchmark, amount of write-off claims and an upward revision in MYT during a mid-term review.

While remaining within manageable levels, leverage indicators have continued to trend upwards. Debt servicing coverage ratio is expected to decline but remains comfortable over the rating horizon. The rating incorporates KE’s sizeable revenue base with net turnover amounting to Rs. 184.2b in FY18.

VIS