PACRA Assigns Initial Entity Ratings to ZKB Construction (Pvt.) Limited

ZKB Construction (Pvt.) Limited (the “SPV”) has been established solely to raise Shariah-compliant funds for Zahir Khan & Brothers (ZKB – the Firm) through Sukuk issuance. As a partnership firm, ZKB cannot directly access capital markets for such instruments; therefore, the SPV, as a private company, raises funds and extends them to ZKB via a Shariah-compliant facility. The SPV will not undertake any other commercial activity in future of its own. The Sukuk proceeds will be used to finance new project acquisitions and support ZKB’s working capital. To enhance repayment assurance and investor confidence, ZKB has pledged future cash flows from seven key infrastructure projects, with an estimated cumulative realization of PKR 26bln. These projects are funded by reputable agencies such as the World Bank and ADB, with execution timelines that closely align with the Sukuk’s repayment schedule. To safeguard Sukuk repayments, a defined collection and throughput mechanism has been established, including a lien over ZKB’s operating accounts. In addition, a dedicated Collection Account has been set up under a lien in favor of the Sukuk holders. All gross revenues generated by ZKB from the identified projects ("Revenue") will be routed through this Collection Account from the respective Operating Accounts, under an irrevocable instruction mechanism. The throughput structure operates as: The portion of the Revenue in the Collection Account maintained by ZKB, equal to at least the upcoming Sukuk principal and installment payment, shall be transferred to the DPA as well as DSRA, both of which are maintained by the SPV and remain under lien in favor of the Sukuk holders. This arrangement ensures that the DPA and DSRA are fully funded at all times with an amount equivalent to one full principal and installment payment. Any excess Revenue, after ensuring that the DPA and the DSRA are fully funded, may be transferred to ZKB’s operating account for its commercial use. Project-related inflows are ring-fenced for Sukuk obligations through a dedicated Collection Account, with flexibility to add eligible projects if initial cash flows fall short to maintain timely repayment of the Sukuk. Additionally, the throughput multiple — defined as the ratio of project cash flows to Sukuk obligations — peaking at 46x and tapering to 3.2x by maturity—ensuring sound coverage throughout the life of the Sukuk. The loan extended by the SPV to ZKB includes an additional agreed spread over the Sukuk repayment amount to cover the SPV’s operational expenses. The SPV itself does not engage in any commercial operations and lacks independent revenue-generating assets or cash flows. Therefore, its entire debt-servicing capacity is dependent on repayments from ZKB, making the parent firm’s financial health and cash flow reliability central to the Sukuk’s credit profile. The SPV’s capital structure comprise an initial equity injection of PKR 0.75bln and a proposed long-term Sukuk issuance of PKR 3bln, inclusive of a green shoe option of PKR 0.5bln. The Sukuk will carry a two-year tenor, including a nine-month grace period.
The ratings reflect ZKB’s long-standing track record in executing major projects and the SPV’s dedicated role in facilitating market access. Sustained cash flow generation, award of new projects, and timely Sukuk repayments is a key consideration in assigning the ratings.

About the Entity
ZKB Construction (Pvt.) Limited is a wholly owned subsidiary of Zahir Khan & Brothers, a partnership Firm. The SPV is led by CEO Mr. Suleman Khan, supported by an experienced management team.