Press Release

JCR-VIS Reaffirms Entity ratings of Deokjae Connecting Roads (Private) Limited

Karachi, April 20, 2018: JCR-VIS Credit Rating Company Limited has reaffirmed entity ratings of Deokjae Connecting Roads (Private) Limited (DCRPL) at ‘A+/A-1’ (Single A Plus/A-One). Outlook on the assigned ratings is ‘Stable’.

DCRPL is a Special Project Company and is a subsidiary of Deokjae Construction Company Private Limited (DCCPL). The company has entered into a concession agreement for a period of 32 years with the Government of Sindh (GoS) for the construction, management and maintenance of the Hyderabad, Mirpurkhas Dual Carriageway (HMDC) project. The project started commercial operations in 2012.

The assigned ratings incorporate strong sponsor support of both GoS and DCCPL as reflected by the presence of timely debt repayment mechanism in the form of Minimum Revenue Guarantee (MRG) and for which GoS has set aside funds on present value basis with a commercial bank which has facilitated the ongoing debt servicing ability of the company. Moreover, GoS also has 30.75% equity stake in DCRPL and had provided additional loan to the company for construction of this project on discounted rates and flexible terms. Furthermore, the arrangement also covers cost overruns through subordinated loans by both sponsors and standby interest rate subsidy by GoS beyond a 10% threshold level.

Actual traffic volumes during FY17 and HY18 have been reported higher than the projected volumes. The same have also resulted in higher than projected revenues. Given the significant time savings incurred by commuters through this route and a diversified traffic mix, growth in traffic volumes is expected to sustain going forward. Revision in toll rates, based on cumulative CPI growth over the last two years and incorporating concessionary rates for local residents are expected to continue. Moreover, no competitive roads can be constructed within a 10 km radius of the HMDC project during the period of concession. Hence, toll revenues are also expected to maintain a positive trend going forward.

Liquidity profile of the company including MRG is considered sound. Standalone FFOs remain higher than projections due to better than expected traffic flow. Given the sizeable quantum of MRG outstanding and projected revenue growth due to higher traffic volumes, it is expected that the company’s ability to meet senior debt obligations remains manageable. However, ratings are constrained due to reliance of the company on MRG to meet senior debt obligations; this dependence is projected to decline in the coming years.

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

Applicable Rating Criteria:

Industrial Corporates (June 2016)
Toll Roads (December 2016)

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 not an NRSRO and its credit ratings are not NRSRO credit ratings.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 2018 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited