Press Release

JCR-VIS assigns initial entity ratings to Deokjae Connecting Roads (Private) Limited

Karachi, June 13, 2016: JCR-VIS Credit Rating Company Limited has assigned initial entity ratings of ‘A+/A-1’ (Single A Plus/A-One) to Deokjae Connecting Roads (Private) Limited (DCRPL). 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 first Public Private Partnership (PPP) project by the GoS. DCCPL, the parent entity, has technical affiliation with Deokjae Korea and Sambo Engineering Company Ltd for expertise in construction, designing and engineering. The project started commercial operation in 2012, hence eliminating the initial stage construction & implementation risk.

The assigned ratings draw comfort from the PPP structure wherein GoS is a 30.75% equity partner. Ratings are further supported by the strong financial structure of the project through Minimum Revenue Guarantee (MRG) agreement for the debt servicing period and for which GoS has earmarked funds on present value basis. This arrangement in which sponsors’ were also required to pitch in beyond certain limits has worked as planned. Besides, the arrangement also covered cost overruns through sponsor subordinated loans and standby interest rate subsidy by GoS beyond a 10% threshold level.

The HMDC is a 60km road that connects the cities of Hyderabad, Tando Jam, Tando Allahyar and Mirpurkhas via a dual carriageway. Time savings over the course of the entire journey is significant; time taken over the route is less than half through alternate routes. Moreover, no competitive roads can be made within a 10KM radius of the HMDC project during the period of concession. Traffic profile features a mix of commuter, agriculture and business related travel and is expected to remain moderately resilient to changes in economic cycles.

Infrastructure projects generally have a long gestation period and show a gradual rise in traffic and revenues. This has been built in the financial model and addressed through the arrangements outlined above. Volume of traffic on the route has increased overtime with significant growth noted in the on-going year. Contractual mechanism is in place for increasing tolls and is based on cumulative CPI growth over the last two years. Standalone financial profile draws support from growing revenues.

For further information on this rating announcement, please contact Mr. Javed Callea (Ext: 501) or the undersigned (Ext: 508) at 92-21-35311861-70 or fax to 92-21-35311873.

Mohammed Khalid Ali

Applicable Rating Criteria: Industrial Corporates (June 2016)

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 2016 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