Press Release

JCR-VIS assigns initial entity ratings to Swat Expressway Planning Construction and Operations (Private) Limited
 

Karachi, April 25, 2018: JCR-VIS Credit Rating Company Limited has assigned initial entity ratings of ‘A-/A-2’ (Single A Minus/A-Two) to Swat Expressway Planning Construction and Operations (Private) Limited (SEPCO). Outlook on the assigned ratings is ‘Stable’.

SEPCO is a private limited company established to undertake construction and oversee management and maintenance of Swat Expressway (SER). SEPCO has entered into a Concession Agreement (CA) with Pakhtunkhwa Highways Authority (PKHA) for a period of 25 years in this regard under Build-Operate-Transfer (BOT) mode. As per agreement, completion date of the project is envisaged for May’2019. Given the current pace of work, management expects significant completion by last quarter of 2018.

The assigned ratings incorporate sound profile of the two shareholders of SEPCO. Shareholding is vested with Frontier Works Organization (FWO) (Class A shares) and PKHA (Class B shares). Major stakeholders, PKHA and FWO have considerable experience in infrastructure projects. In the past, FWO has undertaken notable projects under Public Private Partnership and BOT mandates. However, the ratings are constrained by absence of parent company guarantee and sponsor support agreement between SEPCO and the sponsor (FWO). Ratings are supported by existence of Operating Servicing Reserve Account (OSRA) with an amount equivalent to ~40% of the total debt; this has been built as part of the overall project cost.

SER will be an 81km four-lane divided carriageway with service roads, starting from Kernal Sher Khan interchange on M-1 and ending at Chakdara near intersection of N-45 and N-95. It is assumed that major chunk of traffic will comprise vehicles diverted from the alternate route i.e. N-45. Traffic profile depicts that majority traffic will pertain to tourism and commuter related travel. Time savings over the course of the entire journey will be significant; time taken over the route is expected to be less than half through alternate route. In case a competing route is established, clauses exist within CA to ensure that such competing route’s toll rates remain higher than SER’s toll rates. Toll rates will be revised upwards every year in line with terms of the CA.

Financial profile and liquidity metrics are dependent upon realization of assumed traffic. Gross revenue is expected to increase on account of growth in traffic and escalation in toll rates. With higher profitability, fund flow from operations is expected to increase steadily over the years. Cushion in debt servicing is low 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 for meeting shortfall in debt repayment.

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


Javed Callea
Advisor

Applicable Rating Criteria
Industrial Corporates (May 2016) http://jcrvis.com.pk/docs/Corporate-Methodology-201605.pdf
Toll Roads Rating (December 2016) http://jcrvis.com.pk/docs/MethToll201612.pdf

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Information herein was obtained from sources believed to be accurate and reliable; however, JCR-VIS Credit Rating Company Limited (JCR-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. JCR-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. JCR-VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings. JCR-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 JCR-VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to JCR-VIS.

JCR-VIS Credit Rating Company Limited