Press Release

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

Karachi, March 12, 2020: 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). The long term rating of ‘A+’ signifies good credit quality; protection factors are adequate. Risk factors may vary with possible changes in the economy. The short term rating of ‘A-1’ signifies high certainty of timely payment. Liquidity factors are excellent and are supported by good fundamental protection factors. Risk factors are minor. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on April 20, 2018.

Assigned ratings of DCRPL are underpinned by strong sponsor support of both Government of Sindh (GoS) and Deokjae Construction Company Private Limited (DCCPL) in the form of financial and technical assistance. While DCCPL holds interest of 69.25% in DCRPL, GoS, along with its 30.75% equity stake, 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. GoS also provided support in the form of Minimum Revenue Guarantee (MRG) for which it has set aside funds on present value basis with a commercial bank for facilitating debt servicing ability of the company.

Revenue base of the company is a function of both traffic flow and toll rates. Given the strategic location of the project, commuters save significant time through this route on account of which growth in traffic volumes is expected, going forward. With the toll rates being inflation indexed, prices of the same are also expected to increase which will support the top line. Going forward, revision in toll rates and incorporating concessionary rates for local residents are expected to continue as planned. Weighbridge revenues have also trended upwards and are expected to grow further in future to support revenues.

Liquidity profile of the company is supported by higher revenue base and a structured mechanism in place, in the form of built-in and triggered MRGs, to facilitate timely debt servicing. Given sufficient quantum of MRG outstanding and projected revenue growth due to higher volumes, it is expected that the company’s ability to meet senior debt obligations remains manageable. However, ratings remain constrained due to reliance of company on MRG to meet senior debt obligations; this dependence is likely to be withdrawn in the coming year, given the last debt repayment to senior lenders in June 2020. Since the loan acquired from GoS is subordinated in nature and will be repaid post repayment of debt acquired from senior lenders, no structured mechanism exists for repayment of debt.

For further information on this rating announcement, please contact the undersigned (Ext. 201) or Ms. Muniba Abdullah, CFA (Ext: 215) or at 021-35311861-70 or email at

Javed Callea

Applicable Rating Criteria: Industrial Corporates (May 2019)
Toll Roads (November 2018)

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 2020 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .

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