PACRA Maintains the Instrument Ratings of ZKB Construction (Pvt.) Limited - PP Sukuk - PKR 3bln - TBI

The assigned ratings continue to factor in the proposed Sukuk structure, under which ZKB Construction (Pvt.) Limited (the "SPV") serves as the issuing vehicle for Zahir Khan & Brothers (ZKB). As a partnership firm, ZKB cannot directly access the capital markets; accordingly, the SPV will issue the Sukuk and on-lend the proceeds to the AOP, enabling Shariah-compliant, market-based funding. The SPV has no independent operations, and its ability to service the Sukuk is entirely dependent on repayments from the AOP. Consequently, the Sukuk's credit profile is underpinned by ZKB's financial strength, cash flow generation, and debt-servicing capacity. Previous ratings were assigned on 4 July 2025. Since then, management has actively marketed the Sukuk and indicated that the transaction has received significant soft commitments, primarily from financial institutions, with formal approvals expected before 1QFY27. To support the repayment mechanism, ZKB has pledged future gross cash flows from seven infrastructure projects backed by reputable development agencies, including the World Bank and ADB. Although certain projects have experienced execution delays and minor timeline deviations, management expects the projected cash flows to remain sufficient to meet the Sukuk obligations. Transaction structure permits the inclusion of additional eligible projects. Management intends to incorporate cash flows from recently secured project awards, if required, to reinforce the pledged cash flow pool and offset the impact of project execution delays. Rating Watch reflects the time taken in issuance process, which has necessitated the possible inclusion of further projects into the assigned cashflows. Management is identifying the cashflows, sufficiency and appropriateness of which will be assessed. Under the transaction structure, project collections are routed through a defined cash waterfall to ensure priority funding of the DPA and DSRA before surplus funds are released to the Firm. Operating and collection accounts remain in the name of ZKB, while the DPA and DSRA are maintained in the name of the SPV, with all designated accounts subject to a lien in favour of the Sukuk holders and supported by irrevocable payment instructions. Structure also provides flexibility to add eligible projects, supporting adequate repayment coverage throughout the Sukuk tenor. Assigned ratings remain sensitive to the timely realization of projected cash flows, successful execution of the underlying projects, continued project awards, adherence to the prescribed repayment waterfall, and required reserve accounts.
The Sukuk benefits from multiple layers of security, including a first-ranking hypothecation charge over the present and future current and fixed assets (excluding land and buildings) of both the AOP and the SPV, maintained with a 20% margin, personal guarantees from the AOP's partners, and a corporate guarantee. DSRA will be funded progressively from the 45th day after issuance, while the DPA will be funded in two tranches during each quarterly payment cycle to ensure timely debt servicing. In addition, a lien without recourse has been placed over the AOP's operating account, where project proceeds are initially deposited, and will remain effective until the Sukuk's maturity.

About the Entity
ZKB Construction (Pvt.) Limited is a wholly owned subsidiary of Zahir Khan & Brothers.

About the Instrument
The SPV is issuing a Rated, Privately Placed Islamic Sukuk of up to PKR 3,000mln, with a PKR 500mln green shoe option and a two-year tenor, to be listed on the DSLR at the issuer's discretion. Proceeds will be utilized by ZKB to fund its project portfolio and meet working capital requirements. The expected profit rate is 3M KIBOR + 2.00%-2.50%, to be finalized at issuance. Sukuk includes a nine-month grace period on principal, followed by quarterly principal repayments until maturity, with periodic payments.