Final PR
The Pakistan Credit Rating Agency Limited

Jhangeer Hanif

Muneeb Rashid

Applicable Criteria

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PACRA Maintains Rating of TFCs (Azm Certificates III) issued by K-Electric Limited
 Rating Type Debt Instrument
 Action Maintain
 Long Term AA+
 Short Term -
 Outlook Stable
 Rating Watch -

The rating reflects demonstrated history of timely repayments of outstanding retail TFCs - Azm - issued by KE. Strong security structure of instrument outline that TFC holders have a first pari passu charge on bills receivable from a set of carved out consumers. The bill collection ratio of this set is strong. A minimum throughput of 1.2x is to be maintained from receivables of carved out consumers - 495 specific entities. The amounts received are directly deposited into Debt Payment Account (DPA), which is gradually built over a period prior to each repayment date to avoid pressure on any single month. Historical pattern of collections is robust and hence, cashflow coverages are expected to remain strong for the remaining life of the issue. Meanwhile, coverages since the issuance of the instrument have been strong. This is attributable to good collection pattern, and increase in underlying revenues. Out of the series of TFCs issued, KE has successfully redeemed TFC (I) and TFC (II) in Sep13 and Aug15 as per agreed timelines. Volatile domestic socio-political environment may exert some pressure on the issuer though it is not likely to impact TFCs performance.

The rating is dependent on the continued compliance with the predefined security structure of the instrument.
About the Entity
K-Electric, a verticall-integrated power utility, has been in operations for more than a century. At end-Mar17, KES Power Limited (KESP) held 66.4% share in KE, while Government of Pakistan owned 24.4%. KES Power is majority owned (52.3%) by Abraaj Capital (Private Equity Group) with the balance held by a group of investors (Al Jomiah, Saudi Arabia and NIG, Kuwait). KES Power has lately entered into a share purchase agreement with Shanghai Electric Power Company Limited (SEP) for sale of up to 66.4% shares of KE against a consideration of US$ 1.77bln. The transaction will close once customary closing conditions and requisite regulatory approvals are obtained.

KE has a thirteen member board that comprises nine representatives of KESP, three GoP members and one independent member. The CEO - Mr. Tayyab Tareen - is supported by an experienced team.
The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.