KESC switches to profit after six years of losses

Profit marks first billion made by UAE-based Abraaj Capital post acquisition.

KARACHI:

Karachi Electric Supply Company (KESC) has switched to a profit regime in fiscal 2012 after a gap of six years.

The electric supplier posted net profit of Rs2.62 billion, more than the total amount the company made in the last ten financial years, in fiscal 2012 compared with loss of Rs9.4 billion in the same period a year ago, says a notice sent to the Karachi Stock Exchange.

The profit also marks the first billion made by Dubai-based Abraaj Capital since it acquired management controls of the city’s sole power distributor in November 2005. The management posted a profit of Rs321 million in the year it took over and since then has been incurring a loss. The utility witnessed a profit only twice in the last twelve years.

The core increase in profitability stems from tariff adjustment, one of the three ways the electricity distributor generates revenue, data shows. Revenue from tariff differential electrified 56% to Rs70 billion in the outgoing financial year compared with the preceding year’s Rs45 billion.

Overall revenues grew 24% to Rs163 billion compared with the preceding year’s Rs131 billion.

The company also managed to trim expenses incurred in transmission, generation and distribution by 8% to Rs13.3 billion in fiscal 2012 from Rs14.5 billion.

Transmission and distribution losses have come down to 32.2% of the total from 34.43% in fiscal 2005, the year it switched from being a state-owned enterprise to a private company. The line losses are still higher than the national average of around 22% and more than double the global average of around 15%.

The company’s shares rose 22% or Rs0.81 to Rs4.49, the highest since May 3 during trade at the Karachi Stock Exchange.

The result will help us position KESC favourably in the investors’ community and help us generate funds for our future mega projects, added Gauhar. A profitable KESC will help us attract the required financial resources from local and international financiers,” said KESC CEO Tabish Gauhar in a press statement.

Raising capital

The new management has had to raise large amounts of capital in order to switch the entity into a profit regime.

During the last few years, KESC has been successful in arranging substantial funds for its development project from Asian Development Bank, International Finance Corporation and OEKB along with many local financial institutions.

In July 2011, the company decided to issue 7.25% right shares, hence 29 new shares for every 400 ordinary shares held by stakeholders.

The management launched term finance certificate worth Rs2 billion to the general public in May 2012, to finance KESC’s permanent working capital requirements.

In the latest move, KESC will list secured term finance certificates of Rs1.2 billion to raise capital. Privately placed term finance certificates are offered to banks, other financial institutions and not the general public. KSE notified on Wednesday that trading in the second such term finance certificate of KESC will start on the Exchange from August 13, 2012.

“We are grateful to our international shareholders who have been very patient and our international and local lenders who entrusted us with their money,” said Gauhar.

Published in The Express Tribune, August 9^th, 2012.