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The Pakistan Credit Rating Agency Limited
Press Release

Date
22-Oct-19

Analyst
Usama Liaquat
usama.liaquat@pacra.com
+92-42-35869504
www.pacra.com

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This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Rating of Habib Construction Services Limited

Rating Type Entity
Current
(22-Oct-19)
Previous
(22-Apr-19)
Action Maintain Upgrade
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The company has executed multiple large projects over the last couple of years. One of the mega project that was recently delivered is Orange Line Metro Train. Although the size of the project was grand, the company faced certain difficulties in execution and revenue generation. As of today, the company has completed its role in the project and consequently all the performance guarantees have been released. Currently, 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. In accordance with legal requirement an arbitrator has been appointed for the company through court. HCS has revamped its strategy by diversifying the pipeline of its projects and now the focus is on multi-lateral financed and multiple small projects. During the year, the company has managed to turnaround its performance from huge losses at gross level to breakeven – the fruits of change in the business strategy. Net performance of the company ended in red as it has incurred a bottom line loss but comfort can be taken over its risk absorption capacity through sizeable equity. The future prospects are healthy as the company is in the process of executing in-hand projects worth several billion rupees in its pipeline. Further, a 43km BOT project of tollway worth PKR 5.7bln is under execution, by their subsidiary company 'Shajar roads Ltd' - ensuring sustainable revenue stream for 25 years. This will further ease off the pressure company suffered in previous year. Meanwhile, release of funds from diversified private projects will bode well for the company’s ability to pay its obligation. Further comfort can be drawn from reduction in company’s 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 unquoted) 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. External auditors of the company are, Tariq Abdul Ghani Maqbool & Co. Chartered Accountants, they 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 26 shareholders, all of whom have executive or management roles in the company. The CEO, Mr. Shahid Saleem, is considered the visionary leader behind the success of the company. The overall control of the company vests in three-member board of directors (BoD), all of whom have executive roles and there is no independent director.

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.