Press Release

VIS assigns initial entity ratings to Lahore Sialkot Motorway Infrastructure Management (Pvt.) Limited

Karachi, March 11, 2019: VIS Credit Rating Company Limited has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Lahore Sialkot Motorway Infrastructure Management (Pvt.) Limited (LSMIM). Outlook on the assigned ratings is ‘Stable’. The long term rating of ‘A-’ signifies adequate credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short term rating of ‘A-2’ signifies good certainty of timely payment. Liquidity factors and company fundamentals are sound. Access to capital markets is good. Risk factors are small.

LSMIM is a private limited company established to undertake construction and oversee management and maintenance of Lahore Sialkot Motorway (LSM). LSMIM has signed a Concession Agreement (CA) with The National Highway Authority (NHA) for a period of 25 years. The project will be established under the Public Private Partnership (PPP) regime on Build Operate & Transfer (BOT) basis, with Frontier Works Organization (FWO) acting as EPC Contractor and O&M Contractor. As per agreement, mandated completion date of the project is stipulated in December 2019. Based on current work progress, management expects project completion within stipulated time.

The assigned ratings reflect sound profile of the two shareholders of LSMIM, Frontier Works Organization (FWO) (Class A shares) and NHA (Class B shares). Class B shares are not eligible for dividends. Both sponsors of the company have sound track record and experience in infrastructure projects. The concession agreement does not carry a minimum revenue guarantee and there is no sponsor support agreement between LSMIM and the sponsor (FWO) for any unexpected shortfalls. Ratings, however, draw comfort from presence of a Debt Service Reserve Account (DSRA) built as part of the overall project cost. DSRA will maintain an amount equal to next debt repayment installment at all times.

LSM will be 89.2 km long four lane motorway in north-south region of Pakistan; it will be linked with M2 and N5 through Lahore link road near Kala Shah Kaku and with Lahore Ring Road via Lahore Eastern Bypass. The route will run parallel to Grand Trunk (GT) road, passing east of Daska, east of Sambrial and end in Sambrial. Projected traffic mix indicates that majority of the traffic on the proposed route will be commuter related traffic. Time and fuel cost savings are expected to be considerable vis-à-vis the alternate route (GT Road). Moreover, in case a competing route is established by any other public sector entity, concession agreement mandates that tolls of the competing route will remain higher than tolls charged on LSM.

Financial profile and liquidity metrics are contingent upon realization of projected traffic numbers. Projected traffic volumes are in line with the volumes indicated by the traffic survey study. Gross revenue is expected to increase on account of growth in traffic and escalation in toll rates over the years. With higher profitability, fund flow from operations is expected to increase steadily over the years. Cushion in debt servicing is limited in the initial years but is projected to increase with growth in traffic and increase in toll rates. The company will have to utilize built in reserves in case of any shortfall in debt repayment.

For further information on this rating announcement, please contact the undersigned (Ext: 201) at 92-21-35311861-70 or fax to 92-21-35311873.


Javed Callea
Advisor

Applicable Rating Criteria
Industrial Corporates (May 2016) https://www.vis.com.pk/kc-meth.aspx
Toll Roads Rating (November 2018) https://www.vis.com.pk/kc-meth.aspx

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 2019 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .