Press Release

VIS has Reassessed Entity Ratings of Superhighway Construction Operation and Rehabilitation Engineering (Pvt.) Limited

Karachi, October 20, 2022: VIS Credit Rating Company Limited has reassessed the entity ratings of Superhighway Construction Operation and Rehabilitation Engineering (Pvt.) Limited (‘SCORE’ or ‘the Company’) at ‘AA-/A-1’ (Double A Minus/A-One). 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 high certainty of timely payment, excellent liquidity factors supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’. The ratings were suspended on June 29, 2022, due to non-availability of required information for rating analysis. Subsequently, following submission of required information, the ratings have been reassessed.

SCORE was incorporated for the conversion of existing 4-lane Karachi-Hyderabad Superhighway into a 6-lane road i.e. the M9. The project was acquired by FWO on Build, Operate and Transfer (BOT) basis. The Company has entered into a concession agreement with National Highway Authority (NHA) for a period of 25 years starting March 2015. Toll collection from the road commenced in June 2018.

The assigned ratings reflects strategic importance of the M-9 motorway, which offers various savings to commuters including lower vehicle operating cost, lesser time and distance, which are not available in the alternative route. The assigned rating factors in the unconditional guarantee of debt repayment provided by FWO in favor of SCORE. Business risk profile of the SCORE is viewed as ‘low’ given that construction risk has almost entirely been concluded. Operational risk is assuaged by that fact that FWO is overseeing the O&M of M-9; FWO has significant experience overseeing O&M of toll roads in the country.

In FY21, the Company's DSCR came under stress. This was primarily due to a breach of covenants with the lender for current ratio falling below the pre-defined benchmark specified in the financing agreement. As a result, the Company no longer had an unconditional right to postpone the repayment of the loan (including Musharaka) for at least 12 months, and the entire loan amount was classified as current liability. Subsequent to end-FY21, the banks waived off the compliance requirements with respect to current ratio as required in the financing agreement. For FY22, given reclassification of entire debt as short term, the DSCR was reported at 0.46x. However, subsequent to waiver provided by banks and reclassification of debt, DSCR is estimated at ~1.8x, which is viewed as comfortable. Cash outflows in the rating horizon are limited albeit are expected to rise over the longer term, ahead of FY24-25 as the highway will require a layover after 7 years of operations. The financial risk profile of the Company has depicted improvement on a timeline with gearing falling from 1.72x as of Jun’21 to 1.46x as of Jun’22.

For further information on this rating announcement, please contact Arsal Ayub, CFA (Ext: 215) or the undersigned (Ext: 207) at 021-35311861-70 or fax to 021-35311873.

Sara Ahmed

Applicable Rating Criteria: Toll Roads (August 2021)
Industrial Corporates (August 2021)

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