VIS Reaffirms Ratings of Lahore Sialkot Motorway Infrastructure Management (Private) Limited

Karachi, August 19, 2020 (PPI-OT): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Lahore Sialkot Motorway Infrastructure Management (Private) Limited (LSMIM) at A-/A-2 (Single A Minus/A-Two). The medium to long-term rating of ‘A-’ denotes good credit quality coupled with adequate protection factors. Moreover, risk factors may vary with possible changes in the economy. The short-term rating of ‘A-2’ denotes good certainty of timely payment coupled with sound company fundamentals and liquidity factors. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on March 11, 2019.

LSMIM was established to undertake construction and oversee management and maintenance of Lahore Sialkot Motorway. LSMIM has signed a Concession Agreement with The National Highway Authority (NHA) for a period of 25 years. The project will be established under the Public Private Partnership regime on Build Operate and Transfer basis, with Frontier Works Organization (FWO) acting as EPC Contractor and O and M Contractor.

The ratings assigned to LSMIM takes into account strong sponsorship profile of its two shareholders, FWO and NHA, having ample experience in infrastructure projects. The ratings draw comfort from precise financial planning and execution resulting in avoidance of cost overruns. The motorway is operational since March 18, 2020. Due to non-availability of concession area, some additional works are pending, which are envisaged to be completed by end-October’20. Temporary arrangements to facilitate commuters’ journey have been provided, therefore, the construction and implementation risks are largely addressed. Commercial Operation Date (COD) is expected to be achieved on October 30, 2020.

The assigned ratings also incorporate the presence of Debt Service Reserve Account (DSRA) with an amount equal to next debt repayment instalment to be maintained at all times after termination of grace period. Revenues have fallen short of projected growth amidst lockdown. Growth in traffic volumes has been witnessed over last few months’ points towards mitigation of operational risk also supported by the presence of FWO as the O and M contractor.

FWO is also committed to provide additional subordinated loan to support initial debt servicing, if need arises. As per agreement, any other shortfall in project financing will also be provided by FWO in form of equity or subordinated loan. The ratings, besides the above commitments of FWO, also remain dependent on successful achievement of COD in stipulated time, with no further delays. Further, traffic volumes following COD and the maintenance of DSCR at certain level as specified in concession agreement, are imperative to the assigned ratings.

For more information, contact:
Director Compliance and Rating Analytics,
VIS Credit Rating Company Limited
VIS House, 128/C, 25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi, Pakistan
Tel: +92-21-35311861-72
Fax: +92-21-35311873