Karachi, July 12, 2021 (PPI-OT):VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Swat Expressway Planning Construction and Operation (Private) Limited (SEPCO) at ‘A-/A-2’ (Single A Minus/Single A-Two). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely repayment, sound liquidity factors and good company’s fundamentals. Outlook on the assigned ratings is stable. Previous ratings action was announced on June 30, 2020.
The assigned ratings take into account strong sponsor profile, as shareholding of the company is held by Frontier Works Organization (FWO) (Class A shares) and Pakhtunkhwa Highways Authority (PKHA) (Class B shares), both having extensive experience in infrastructure development projects, including public-private partnership and BOT mandates. The ratings also factor in presence of a Concession Agreement for a period of 25 years with the PKHA for construction, management, and maintenance of the Swat Expressway and FWO being responsible for Engineering, Procurement, and Construction (EPC) and Operations and Maintenance (O and M). The ratings draw comfort from completion of the expressway within the projected cost estimate despite delays in availability of Concession Area and revision in original construction plan.
Independent Engineer has issued a substantial completion certificate, while finishing work on Service Area is expected to be completed soon. Expressway is fully operational and toll is being collected on all interchanges, however, flow of traffic has been adversely impacted by the enforcement of travel restrictions due to the outbreak of COVID-19. Going forward, all toll booths are currently fully equipped and will be made functional based on expected increase in traffic flow with ease in travel restrictions. Growth in projected revenues will primarily be a function of increase in toll rates, as specified in the Concession Agreement.
The ratings draw comfort from re-profiling of debt where syndicated term finance facility (STFF) has been fully prepaid on February 04, 2021. The prepayment has been arranged through a mix of bridge finance facility from the National Bank of Pakistan (NBP), subordinated debt from FWO, and internal capital. The company is currently in process of converting NBP bridge finance facility into STFF for a period of 10 years, including grace period of 2.5 years; the conversion is expected to be completed by end-July’2021. While leverage indicators remain manageable, improvement in traffic volumes and maintenance of the Debt Service Coverage Ratio at a certain level are imperative to the assigned ratings.
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
Email: bilal@jcrvis.com.pk
Website: https://www.vis.com.pk/