Karachi, August 31, 2016: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the bank loan rating assigned to the facility acquired by Avari Hotels (Pvt.) Limited (AHL), amounting to Rs. 1.5b (Rs. 1b of Islamic Musharaka facility and Rs. 500m of conventional financing facility), at ‘A (blr*)’ (Single A (blr)). Outlook on the assigned rating is ‘Stable’. Previous rating action was announced on November 24, 2014.
AHL operates in the hospitality sector and owns two five star hotel properties in Pakistan. Moreover, the company also caters to mid-tier clientele through boutique hotels established under the brand name of Avari Xpress (AX), for which AHL issued an instrument amounting to Rs. 1.5b during 2014. This funding is being utilized partly for expanding AX properties, while the remaining proportion was utilized for refurbishment of Avari Hotels Karachi and retiring previously issued TFC by AHL. Rating takes into account the cash flow capture mechanism, which has been incorporated to entrap the revenue stream of AX properties for the purpose of principal repayment of this facility. The rating also draws comfort from assignment of office rent receivable from a large client of Avari Towers (AT) Karachi, in case of any shortfall in repayment during the life of the instrument. Along with this, the issue also carries a first ranking pari passu mortgage charge over its hotel properties.
Despite decline in occupancy levels, revenue of AHL increased on the back of higher average room rents charged to customers and enhanced revenue stream from other services in FY15. Bottom-line was supported by growth in top-line along with better control over expenses. Ratings are constrained by high leverage structure of the company and imposition of higher tax rate on property income. Planned expansion of AX with an addition of over 400 rooms is expected to supplement revenue and ease the burden on cash flows going forward.
For further information on this rating announcement, please contact the undersigned (Ext: 234) or Mr. Mohammed Khalid Ali (Ext: 241) at 35311861-70 or fax to 35311872-3.
Applicable Rating Criteria: Industrial Corporates (May 2016)
* blr notation has been applied to facility ratings from October 5, 2015
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