Press Release

VIS Assigns Preliminary Bank Loan Rating To Ghotki Kandhkot Road & Bridge Company (Pvt.) Limited

Karachi, July 31, 2024: VIS Credit Rating Company Limited (VIS) assigns preliminary bank loan rating of 'AA' (Double A) to Ghotki Kandhkot Road & Bridge Company (Pvt.) Limited (‘’GRBC’’ or ‘’the Company’’) secured bank loan facility planned to be drawn for the construction of a bank to bank bridge and approach roads over river Indus “Project”. The assigned rating signifies high credit quality; Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions.. VIS has also reaffirmed the entity ratings of GRBC at ‘’A/A-2’’ (Single A/A-Two). Outlook on the assigned ratings remains ‘’Stable’’. Previous Rating action was announced on March 15, 2023.

Ghotki Kandhot Road & Bridge Company (Private) Limited was incorporated on May 21, 2018 under the repealed Companies Ordinance, 1984 (now the Companies Act, 2017 as a special purpose vehicle (SPV) for undertaking the design, finance, building, operation, and transfer (DFBOT) of the Project. It is a subsidiary of Sachal Engineering Works (Private) Limited ('SEWL' or 'the Holding Company'), which currently owns 53.33% of the Company. Government of Sindh (GoS) holds the remaining 46.67% shares without any voting rights. Originally, the Project envisaged construction of a 30.2 kilometers (kms) highway and a 2 km bridge over the River Indus on DFBOT basis. In November 2022, the project scope was expanded to include building a bridge across the entire span of River Indus, totaling 12.20 km .Additionally, approach roads of 10.40 km from the Ghotki side and 8.341 km from the Kandhkot side were incorporated, resulting in a combined length of 30.941 km. Furthermore, a 4.58 km Thul Link Road was also added to the project.

Based on the expanded project scope and increased project cost, the Company intends to secure a debt amounting to PKR 19,000 mln, previously estimated at PKR 9,820 mln, through a Syndicated Long Term Local Currency Project Finance Facility (‘STFF’, ‘PF’, or ‘Facility’). Habib Bank Limited (HBL) and Meezan Bank Limited (MBL) are jointly acting as lead advisors and arrangers for the Facility, each contributing PKR 5 billion. Negotiations with other banks are ongoing to secure the remaining PKR 9 billion loan. The revised terms for the STFF include an adjustment of the spread to 3M KIBOR + 150 basis points per annum, up from 130 bps/annum with the tenor now set at 11 years door-to-door (inclusive of the availability period) compared to the previous 12 years. The security structure remains unchanged.

The assigned ratings reflect GRBC's low business risk profile, underpinned by minimal demand risk and established construction milestones between GoS and GRBC. Full financial backing from the GoS and SEWL reinforces the assigned ratings. However, potential liquidated damages and implementation risk due to project delays pose a significant constraint on the ratings.

The ratings incorporate a strengthened security structure comprising a continuous, unconditional, and irrevocable debit authority on the GoS Non-Food Account No. 1, supported by the Provincial Guarantee covering 50% of the debt to be obtained. Advance quarterly annuity payments by GoS to GRBC, covering O&M costs, taxes, debt obligations, a fixed ROE, and equity redemption, provide adequate support to the Company’s coverage profile. The ratings also acknowledge the Company’s immunity from financial repercussions in case of project termination. Additionally, the implementation of the Environment Management Plan (EMP) as part of an Environment, Sustainability Governance (ESG) framework contributes positively to the assigned ratings.

Moving forward, the ratings will continue to be sensitive to achieving financial close, ensuring timely completion of key milestones, and execution of the project without experiencing significant cost or time overruns.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.

Applicable Rating Criteria:
Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf
VIS Rating Criteria: Toll Roads Rating
https://docs.vis.com.pk/docs/TollRoads_2023.pd

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2024 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .