The Pakistan Credit Rating Agency Limited
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Muhammad Abdullah

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PACRA Downgrades Entity Ratings of Habib Construction Services Limited

Rating Type Entity
Action Downgrade Maintain
Long Term BBB A-
Short Term A3 A2
Outlook Negative Stable
Rating Watch Yes -

There is squeeze in the profitability of the company, given current economic environment and slow down in projects related activity. This is exacerbated by a financial set-back on one of the mega project that Habib Construction was working on. The company incurred significant loss on this project in recent year. The company is in arbitration on this project concerning (i) de-notification of already approved rates on Non BOQ items; and (ii) delays arising from stay orders. Positive settlement of this would support Habib Construction's financial profile. Going forward, the company is looking for different new projects. Also, Habib Construction is devising a fresh strategy to cater to the evolving dynamics. Habib Construction Services has delivered a number of infrastructure projects in the last couple of years and has built its repute as a "Fast Track" execution company. The majority shareholder is Mr. Shahid Saleem, while other executives and management members have remaining stake – furnishing fuel to the company’s growth. Habib Construction Services has a number of banking lines, predominantly non-funded, required for its construction business.
The ratings are dependent on sustaining a steady revenue stream and financial risk profile. Any prolonged downturn in subdued business volume can negatively affect the ratings. Good corporate governance practice is considered essential. Adherence to debt related covenants and overall coverage matrix is essential to ratings.

About the Entity
Habib Construction Services (Public) Limited was established in 2009 and stands tall in the construction industry of Pakistan as the pioneer of "Fast Track" project execution culture. Significant construction projects to its credit are Lahore Ring Road, 2X2.5 MW hydel power project at Chashma, 17 storey Bahria Grand hotel, Benazir Bhutto international airport civil works, Beijing underpass Lahore, Kalima Chowk underpass & overhead bridge, Metro Bus projects in Islamabad, Lahore and Faisalabad, etc. to name a few famous ones. External auditors of the company, Tariq Abdul Ghani Maqbool & Co. Chartered Accountants, expressed an unqualified opinion on annual financial statements of the company for the year ended June 30, 2018.
HCS is registered as a public limited company having 29 shareholders with five shareholders possessing 74.4% of the shares. The CEO, Mr. Shahid Saleem, has 51% stake in the company and is considered the visionary leader behind the success of the company. The overall control of the company vests in seven-member board of directors (BoD). Apart from the CEO, three directors have executive roles, one is an independent director while two seats remained vacant. However, company intends to reconstitute its board on January 21, 2019, where size of the board will be reduced to four, having executive role in the company.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.