VIS Credit Rating Company assigns rating to proposed Short Term Sukuk (STS-15) of K-Electric Limited –
Karachi, March 17, 2023 (PPI-OT): VIS Credit Rating Company Limited (VIS) has outstanding entity ratings of ‘AA/A-1+’ (Double A/A One Plus) to K-Electric Limited (KE). In lieu of the same, VIS has assigned preliminary rating of A-1+ (Single A One Plus) to KE’s proposed Short Term Sukuk (STS-15).
Short-term rating of A-1+ reflects highest certainty of timely payment; short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding and safety is just below risk-free Government of Pakistan’s short-term obligations.
KE plans to issue an unsecured, privately placed STS (STS-15) issue of up to Rs. 5 billion (inclusive of green shoe option of Rs. 1.0b). The tenor of STS-15 is up to 6 months from the date of drawdown and will be redeemed in bullet at maturity. The proceeds of the issue will be utilized for KE’s working capital requirements.
The assigned rating to the issuer 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 Sindh and Baluchistan. In the backdrop of rising political instability, devastating floods and macroeconomic challenges, revenues and profitability indicators of the Company were impacted during 1HFY23.
This, along with conservative recording of impairment loss on receivables and delay in adjustments of fuel adjustment surcharge stressed the bottom line. Further, increase in effective borrowing rate to 17% vis-à-vis 9.4% in the preceding period, has escalated the finance cost. Resultantly, the company has suffered losses on net basis in 1HFY23.
The Company is focusing on improvements on operational fronts to curtail losses. In addition, the Company is actively pursuing to expedite the determination of pending quarterly tariff variations. Meanwhile, with negative cash conversion cycle backed by much extended days of payables, and sufficient working capital lines, the Company is strongly positioned to service its short-term sukuk obligations.
For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
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