Wednesday, December 7

VIS Maintains Entity Ratings of Shajar Roads Limited

Karachi, November 24, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Shajar Roads Limited (SRL) at ‘A/A-2’ (Single A/A-Two). The medium to long-term rating of ‘A’ denotes good credit quality coupled with adequate protection factors. The short-term rating of ‘A-2’ denotes good certainty of timely payments. Liquidity factors and company fundamentals are considered sound. Outlook on the assigned rating has been revised from ‘Rating Watch-Developing’ status to ‘Stable’ in view of attainment of financial close and commencement of construction work. The previous ratings action was announced on September 25, 2019.

SRL was established as a public limited (unlisted) company in order to undertake the dualization and oversee management and maintenance of the existing 43km Sheikhupura – Gujranwala Road under the Design, Build, Finance, Operate, and Transfer arrangement for the duration of the concession period. The company was incorporated by a consortium of infrastructure development companies, namely Niaz Muhammad Khan and Brothers, Habib Construction Services (HCS), and Deokjae Construction Company Pakistan. The company has entered into a concession with Government of Punjab (GoPb) for a period of 25 years. The project is being established under the Public Private Partnership regime, with one of the sponsors, HCS, acting as the Engineering, Procurement and Construction (EPC) Contractor of the company.

The financial close was initially planned for March 2018. However, due to repeated delays in the finalization and acquisition of Project Site License Agreement, the financial close was achieved on August 8, 2020. The company is now targeting to achieve substantial completion within the stipulated time period of 21 months from the financial close date, as mentioned in the concession agreement. Project cost outlay has remained largely unchanged despite considerable delay in land possession and financial close.

Moreover, project financing mix been changed from 60% debt and 40% equity to 35% debt and 65% equity. SRL has entered into agreement with Dubai Islamic Bank Pakistan Limited for mobilization of Diminishing Musharaka Facility 1 (DM-1) and Diminishing Musharaka Facility 2 (DM-2). Tenor of both DMs is up to 7 years including grace period of 12-months or Commercial Operations Date, whichever is earlier, commencing from the facility effective date.

The demand risk is parked entirely with SRL and no minimum revenue guarantee has been provided by the GoPb. However, this risk is mitigated by factors such as conservative assumptions pertaining to traffic volumes incorporated in the financial model. The project entails construction risk and SRL is liable to pay liquidated damages to GoPb in case of any delay beyond substantial completion date; though the risk is largely mitigated by sound profile and operational history of the EPC contractor.

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

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