The Pakistan Credit Rating Agency Limited
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Bazah Tul Qamar

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PACRA Maintains Rating of Habib Construction Services Limited

Rating Type Entity
Action Maintain Maintain
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 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 with Lahore Development Authority (LDA) in respect of various claims pertaining to Lahore Orange Line Metro Train. The company is pursuing the claim, if materialized will improve its liquidity. HCS is now focused towards multi-lateral financed and multiple small projects. Along with different new projects, company has taken up a project of Airport Runway Project costing ~PKR 6.5bln, joint venture between a Chinese company holding 50%, HCS holding 25% and Matracon holding 25%. Due to wide spread pandemic, company couldn't sustain the previous year turnaround in its performance i.e. from gross losses to breakeven, for a longer period and hit a negative figure at gross level in Jun20, resultantly ending up the net performance of the company in red. However a heavy risk absorption capacity through sizeable equity provide comfort to the ratings. The future prospects are healthy as the company has projects worth several billion rupees in its pipeline and also has started taking up and executing projects from private sector. This will further ease off the pressure on company's revenues. However due to new projects, company's reliance on short term borrowing and non-funded lines is expected to increase. Meanwhile, timely release of funds from diversified projects will bode well for the company’s ability to pay its obligation.
The ratings are dependent on sustaining a steady revenue stream and maintaining a low leveraged capital structure . Any prolonged downturn in subdued business volume can negatively affect the ratings. Good corporate governance practice is considered essential.

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, 2019. 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.