Karachi, October 23, 2020 (PPI-OT):VIS Credit Rating Company Limited has assigned preliminary rating of AA (Double A) to the proposed TFCs/Sukuk issue of Ghotki Kandhkot Road and Bridge (Private) Limited (GKRBC). The long term rating of ‘AA’ signifies high credit quality; protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. The company has also been assigned initial entity ratings of ‘A/A-2’ (Single A/A-2).
The long term rating of ‘A’ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short term rating of ‘A-2’ indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small. Outlook on the assigned ratings is ‘Stable’.
GKRBC has been established to develop two sections of the road located at Ghotki Kandhkot site of the Sindh province. This Project will connect N-5 and N-55 between Ghotki on one side and Kandhkot on the other side of River Indus and end on existing by-pass of Indus Highway, N-55. Post construction of this road, distance travelled by the commuters would be reduced by two third in comparison to the alternate route, while time travelled would also be reduced by two hours. The project will be established under the Public Private Partnership (PPP) regime on Design, Finance, Build, Operate and Transfer (DFBOT) basis.
GKRBC has entered into Concession Agreement with Government of Sindh (GoS) for a period of 28 years, out of which construction period is up to three-years and operations and maintenance period is up to twenty-five years. While the company is working towards achieving financial close, the EPC Contractor has mobilized equity funds contributed by both sponsors to ensure timely completion of project expected to be achieved by July 2023. GoS has also underwritten debt component of the project in case of shortfall of funds due to market condition which exhibits its strong support for the project. Total project cost is Rs. 14.3b; project will be funded with 70% debt and 30% equity.
The assigned ratings incorporate sound profile of sponsors, as shareholding of GKRBC is vested with Sachal Engineering Works (Pvt.) Limited (SEWPL) (53%) and Government of Sindh (GoS) (47%). SEWPL will also act as the EPC contractor. SEWPL has considerable experience and sound track record in executing infrastructure projects especially toll roads and bridges. Demand risk, associated with uncertainty in future traffic volumes and toll rates, will not be borne by GKRBC as the company will receive fixed annuity payments from the GoS, which will include O and M costs component, tax component, debt component and a fixed Return on Equity (ROE) for the company.
Since debt component is included in annuity payments, cushion in debt servicing is satisfactory. Construction risk in the project is present but it is also partially mitigated due to sound track record of the EPC contractor. Cost overrun risk is also inherent in the project but 10% increase in costs of escalable items has been incorporated in the project costs. Timely completion of key milestones and overall project without any significant cost and time overruns will be the key rating sensitivities, going forward.
The assigned ratings to the TFCs/Sukuk incorporate structural features of the TFCs/Sukuk. Principal amount of the TFCs/Sukuk is Rs. 10 billion and the instrument will have a tenor of 8 years inclusive of a grace period of 3 years. The annuity payments, which will cover principal and interest/rental payments, will be deposited 105 days prior to TFCs/Sukuk repayment date. So, at any time during the repayment period, at least one debt payment will be available in debt payment account. More importantly, even in case of concessionaire event of default, TFCs/Sukuk repayments are committed to be met by the sub-sovereign – GoS under the Concession Agreement.
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