Press Release

JCR-VIS Assigns Initial Bank Loan Rating to Elite Estates (Pvt.) Limited's Loan Facility

Karachi, June 12, 2018: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial bank loan rating (blr) of ‘BBB-’ (Triple B Minus) to Elite Estates (Pvt.) Limited’s (EEPL) Rs. 3.0b bank loan facility obtained to fund the construction and development of residential and commercial venture ‘ Eighteen’ located near Islamabad - Lahore motorway.

The assigned rating draws comfort from the sound sponsors’ profile coupled with relevant expertise in the industry. The sponsors have considerable experience in infrastructure projects and are considered to be financially sound. The rating also derives strength from complete acquisition of development land for the entire project. However, the rating remains constrained on account of relatively high business risk emanating from delay in project launch thereby leading to heightened risk of completion.

With management forecasting consistently increasing revenue receipts from the sale of residential and commercial plots, actual demand realization along with relevant cash flows are yet to be seen. The company achieved financial close on time; however the official launch of the project ‘Eighteen’ experienced delay of around six months. Soft launch of the project took place in Dec’17 while the full-scale launch was completed by end-March’18. Currently, price risk is largely curtailed on account of fixed auction value decided for the residential segment. On the other hand, takeoff of the project is highly dependent on customer’s market perception about the project which in turn is contingent upon the success of marketing campaigns and project completion according to the timeline. Moreover, decline in the sale of residential units can lead to dampened demand of the commercial segment hence; adversely impacting EEPL’s debt repayment capacity.

Total Project cost (including impact of inflation and devaluation) is estimated at Rs. 48.7b. The project’s land was acquired through sponsor’s equity of Rs. 1.7b and advance received from Jazz amounting Rs. 1.1b. Meanwhile, the remaining development cost is to be funded through debt and advance receipts from the sale of initially residential segment. EEPL has secured syndicated long-term financing amounting to Rs. 3.0b which is expected to be fully drawn by end-FY18. The facility carries a markup rate of 6M-KIBOR plus 2.2% and will be repaid semiannually over a period of 5 years including a grace period of 2 years with principal repayment beginning in FY20. The company is unlikely to experience pressure on liquidity and debt service coverage if the projected sale timelines materialize. Moreover, cushion in debt servicing is expected to remain sizeable even after sensitizing for lower revenues.

As per the indicative term-sheet, risk associated with changes in prices of raw materials shall be borne by the company. As per business model, changes in the prices of major components including steel, cement and labor can have major impact on the overall costs of the project. Presently, the management has incorporated a modest contingency buffer of around 1.5% in the financial model in order to mitigate cost overrun risk. In addition, EEPL’s funding arrangement entails that any subsequent changes in the financing costs would be incurred by the company.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Maimoon Rasheed at 042-35723411-13.

Javed Callea

Applicable Rating Criterion: Bank Loan Ratings (December 2011)

Real Estate Developers (August 2017)

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