Press Release

VIS Reaffirms Entity Ratings of Lahore Sialkot Motorway Infrastructure Management (Pvt.) Limited.

Karachi, January 14, 2025: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Lahore Sialkot Motorway Infrastructure Management (Pvt.) Limited (LSMIML) at ‘A-/A2’ (Single A Minus/A-Two). The medium to long-term rating of ‘A-’ denotes good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short-term rating of ‘A2’ denotes good likelihood of timely repayment of short-term obligations with sound short-term liquidity factors. Outlook on the assigned ratings is ‘Stable’. Previous ratings action was announced on December 27, 2023.

Lahore Sialkot Motorway Infrastructure Management (Pvt.) Limited (‘LSMIML’ or ‘the Company’) is a Special Project Company (SPC) headquartered in Rawalpindi, Punjab. The Company has a 25-year concession agreement with the National Highway Authority (NHA) for the construction, operation, and maintenance of the 89.2 kilometer (KM) long 4-lane access controlled the Lahore-Sialkot Motorway (LSM). This project operates under the Public-Private Partnership (PPP) framework on a Build-Operate-Transfer (BOT) basis in collaboration with the Frontier Works Organization (FWO). Under the agreement, LSMIML, as the concessionaire, is responsible for construction as well as operations and maintenance (O&M) of the motorway.

The assigned rating reflects a strong sponsor profile, with equity held by Frontier Works Organization (FWO) and National Highway Authority (NHA). Both entities bring extensive expertise in infrastructure development under Public-Private Partnership (PPP) and Build-Operate-Transfer (BOT) arrangements, ensuring operational and financial backing to the Company.

Lahore Sialkot Motorway Infrastructure Management Limited (LSMIML) experienced growth in vehicle turnover and toll rates during the year, driven by increased public awareness of the motorway and adoption of the M-tag services. This contributed to higher revenues; however, the Company continues to face financial challenges mainly on account of lower-than-expected traffic flow. Following the conclusion of the operations and maintenance (O&M) contract with FWO, LSMIML assumed project management responsibilities during the year, which led to overall decrease in maintenance and operations cost. However, significant depreciation costs on road infrastructure and rising finance expenses have been resulting in persistent net losses.

Liquidity remains constrained, with limited cash reserves and negative cash flow coverage, although debt servicing has been maintained through sponsor support from FWO. In response to cash flow pressures, the Company successfully negotiated terms for repayment of the bank loan with capping of the installment amounts and deferring excess markup payments to the last installment date. Sponsor loans, primarily from FWO and NHA, provide long-term financial flexibility with substantial grace period by way of deferring commencement of repayment till the bank loans are repaid. The equity base has eroded due to sustained losses; however, the Company's debt ratios remain manageable, primarily due to support provided through the sponsor loans. These loans, along with the strategic importance of the project and debt restructuring, underscore the sponsors' commitment to stabilizing the Company's financial position. Sponsors unwavering commitment along with expectation for normalization of cashflows over time improves prospects of LSMIML for long-term recovery and financial stability.

For further information on this ratings announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.
Applicable Rating Criteria: Corporates:
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
Toll Roads
https://docs.vis.com.pk/docs/TollRoads_2023.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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 2025 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .