Karachi, April 29, 2022 (PPI-OT):VIS Credit Rating Company Ltd. has reaffirmed the entity ratings of AA/A-1+ (Double A/ A One-Plus) assigned to K-Electric Limited (KE). Long-term rating of ‘AA’ signifies high credit quality, and strong protection factors. Risk is moderate but may vary slightly from time to time because of economic conditions. Short-term rating of A-1+ denotes 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 GoP’s short term obligations. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on April 28, 2021.
The assigned rating 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 Sindh and Balochistan. Business risk profile draws support from growing demand for electricity and continuous improvement across various operational metrics. Revenues and profitability indicators have depicted improvement post revival in overall economy post relaxations in lockdown amidst COVID-19. Continuity in improvement in various operational performance metrics is considered important from a ratings perspective.
Assessment of profitability profile reflects improvement in FY21 on account of greater margins as compared to the preceding year led by reduced T and D losses. However, the overall growing profitability in HY22 was impacted by higher impairment loss against trade debts, provisioning against negative mid-term tariff review and exchange loss on liabilities accumulating to the tune of Rs. 12.4b. A similar trend was observed in cash flow coverages of outstanding obligations. Going forward, given expected increase in consumer tariff, generation fleet efficiency and additional power purchase from GoP, cash flows are likely to improve during the rating horizon.
Capitalization indicators of the Company have continued to swell to meet working capital and expansion needs, indicating higher debt utilization. Going forward, debt levels are projected to increase over the rating horizon as additional debt is being undertaken mainly to fund planned investments. VIS expects recent hike in policy rates to be a drag on the overall profitability levels of the company. After FY22, gearing levels are likely to decline by FY24. Projected improvement in the same is considered important from a ratings point of view.
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
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/