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The Pakistan Credit Rating Agency Limited
Press Release

Date
22-Apr-19

Analyst
Muhammad Obaid
muhammad.obaid@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 Upgrades Short Term Rating of Habib Construction Services Limited

Rating Type Entity
Current
(22-Apr-19)
Previous
(18-Jan-19)
Action Upgrade Downgrade
Long Term BBB BBB
Short Term A2 A3
Outlook Stable Negative
Rating Watch - Yes

Habib Construction is in the process of securing new projects which are worth PKR 7bln. Further, 43km BOT project of tollway worth PKR 5.7bln will be executed through subsidiary company - ensuring sustainable revenue stream for 25 years. This will ease off the pressure company suffered in previous year because of the economic conditions and slow down in projects related activity. The company suffered a financial set-back on one of the mega project in previous year - incurring significant loss. However, 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. Court has directed for the appointment of arbitrator and the likely positive settlement of this would support Habib Construction's financial profile. Release of funds from Bahria Town has strengthened the liquidity of the company. 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 27 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 four-member board of directors (BoD). All directors have executive role in the company with 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.