ZKB Construction (Pvt) Limited ("ZKB Construction" or "the SPV") is a company incorporated under the laws of Pakistan to act as a Special Purpose Vehicle (SPV) for the parent entity Zahir Khan & Brothers (ZKB or "the Firm") which is a Partnership Firm established in 1970 and registered with the Registrar of Firms in Baluchistan under the Partnership Act, 1932. ZKB is a partnership firm established in 1970 and registered with the Registrar of Firms, Balochistan, under the Partnership Act, 1932. The Firm is currently undergoing a corporatization process as part of its strategic transition, aiming to broaden its project portfolio and diversify its funding sources. Aligned with its commitment to Shariah compliance, ZKB also plans to integrate Islamic financial instruments, including Sukuk, into its capital structure.

The Firm is desirous of raising funding through the issuance of Shariah-compliant Sukuk Certificates to undertake new projects and to fulfill the working capital requirements of various construction projects it is undertaking (the “Projects”). Due to its legal status as a partnership firm, the Firm may encounter difficulties in undertaking capital markets transactions that are otherwise commonly undertaken by companies incorporated under the laws of the Islamic Republic of Pakistan, including but not limited to raising funding through the issuance of Shariah-compliant Sukuk Certificates. To overcome this limitation, management proposes the following transaction structure:

Immediately upon receiving funds under the Sukuk Issue, the Special Purpose Vehicle (“SPV”) shall utilize the proceeds of the Sukuk Issue to extend a finance facility to the Firm in the aggregate amount equal to the Issue Amount (the “Facility”), for majorly undertaking new projects as well as financing Firm’s working capital requirements in relation to the existing Projects. The terms and conditions of the Facility shall be documented in one or more agreements, instruments, or documents executed from time to time between the SPV and the Firm (collectively, the “Finance Agreements”). Furthermore, the Facility shall be provided by the SPV to the Firm on terms and conditions that are fully aligned with those of the Sukuk Issue, such that:

i) The amounts payable to the investors under the Sukuk Issue (the “Sukuk Payments”) shall not exceed the instalment amounts payable by the Firm to the SPV in respect of the Facility (the “Instalment Amounts”), ensuring that the Instalment Amounts received by the SPV from the Firm are sufficient to fully meet the Sukuk Payments owed to the investors; and

ii) The due dates for the Instalment Amounts (the “Instalment Dates”) shall correspond exactly with the due dates for the Sukuk Payments (the “Sukuk Payment Dates”).

ZKB specializes in a wide array of construction projects, including roads and highways, bridges and overhead structures, residential and commercial buildings, canals, tunnels, water and irrigation systems, dams and flood control systems, oil and gas pipelines, industrial and prefabricated buildings. The Firm is registered with the Pakistan Engineering Council (PEC) and holds a 'CA' class license with a "NO LIMIT" designation. It boasts an extensive range of construction equipment, including pavers, power curbers, asphalt plants, bitumen distributors, transit mixers, rotary drilling machines, gantry cranes, straddle carriers, and milling machines. ZKB employs a permanent workforce and supplements it with additional labor hired temporarily to meet specific project requirements.

The Company is a wholly owned by the parent partnership firm Zahir Khan & Brothers.

The sponsors have established the Company with a strategic vision to eventually transition the Firm into a corporate framework capable of undertaking both current and future projects. Recognizing the operational and structural challenges involved, this transition is expected to occur gradually over time. While the immediate objective is to facilitate the current financing requirements.Notably, the future ownership of the Company is expected to remain stable, underscoring the sponsors’ long-term commitment to the business and its sustained growth.

The sponsoring family has been in the construction industry for many decades. The sponsors possess a comprehensive understanding of the business, as they are actively involved in the day-to-day operations.

The sponsors have a sound financial profile and, both individually and through the Firm, own numerous properties across various locations in the Country. This extensive asset base contributes significantly to the financial strength and stability of the sponsors.

The overall control of the SPV rests with its four partners from ZKB, with each playing an active role in its management. In addition to the CEO, the remaining three partners also hold executive responsibilities, ensuring a hands-on approach to the SPV’s operations. The governance structure provides a foundation for operational oversight; however, there remains room for enhancement, particularly in formalizing and strengthening governance mechanisms. The SPV functions as a mirror replica of the ZKB AOP, reflecting the same ownership, leadership, and strategic direction.

All the partners are highly experienced professionals. Three of them bring approximately over there of experience in the construction industry, while Mr. Zahir Khan, the CEO and founding member of ZKB (Firm), boasts nearly five decades of expertise in the sector. His visionary leadership has been the driving force behind the Firm's success and growth.

Currently, there are no formal committees within the Company. All partners hold management positions, which limits the potential for impartial oversight. However, the partners actively participate in the planning and execution of business projects and regularly oversee the Firm's operations

M/s. RSM Avais Hyder Liaquat Nauman Chartered Accountants serves as the external auditor for the Firm. The auditors have issued an unqualified audit opinion on the financial statements of Zahir Khan & Brothers for the year ended June 30, 2024, reflecting the Firm's compliance with applicable financial reporting standards.

The organizational structure of the Company is still under formal development. The Company derives its organizational structure from the parent Firm which has a well-documented organizational structure with operations divided into six key departments: (i) Bidding, (ii) Information Technology, (iii) Contract Management, (iv) Construction, (v) Admin & HR, and (vi) Finance. Each department has clearly defined responsibilities, ensuring efficient management and coordination across the Firm. 

Mr. Suleman Khan is serving as the Chief Executive Officer of the SPV and also holds the position of Director at ZKB Firm, where he is responsible for overseeing projects in the central region. With over 15 years of experience in the construction industry, Mr. Suleman has developed deep expertise in Public-Private Partnership (PPP) projects, as well as hydropower and water resource developments across Pakistan. At the SPV, Mr. Suleman is supported by a capable core management team, including Mr. Atif Iqbal, Head of Financial Reporting and Accounting; Mr. Kamran, Head of Treasury; and Mr. Omair, Head of Investments, who brings significant experience from the banking sector. Together, they ensure the effective and efficient functioning of both the Firm and the SPV, maintaining strategic consistency and operational excellence.

Given that the same directors and management team oversee both the Firm and the SPV, there is strong alignment and no deviation in strategic direction or execution between the two entities. The board members remain closely involved, providing active oversight and guidance to ensure the successful implementation of projects. They also play a key role in the preparation and submission of project bids. While management holds regular meetings to discuss the Firm’s affairs, the formal documentation of these meetings is an area that could be further strengthened.

The Firm currently utilizes SARP (ERP/Oracle) software, which has been customized specifically for the construction industry. The software efficiently manages key financial functions, including tracking receivables, payables, general ledger, and accounts, providing the Firm with comprehensive financial oversight and control.

The Firm adheres to strict quality control standards, understanding their critical importance in the construction industry, particularly when working with international donor agencies. Additionally, ZKB maintains a comprehensive Management Information System (MIS) that enables the management to monitor activities across various project sites. While an internal control system is in place, ongoing reviews by the partners are essential to further enhance the effectiveness of management and ensure continuous improvement.

The infrastructure construction sector has shrunk in real terms in 2024, owing to headwinds such as rising construction costs, delays to project implementation, and the downward revision of project budgets. The sector is however expected to involve increase in multilateral funded projects in contrast to PSDP and is expected to exhibit a significant annual growth from 2025 to 2028, supported by investment in road, rail, and port infrastructure projects. A major driver of demand comprises the Public Sector Development Program (PSDP) expenditure, followed by Private Investments in the construction sector. PSDP FY24 was up ~30.7% YoY, recording at PKR~950bln. During 7MFY24, PKR~372bln has been authorized, with total expenditure amounting to PKR~161.7bln. Moreover, the Budget FY24 has envisaged, under Current and Development Expenditure on Revenue Account, amounts of PKR~40.5bln and PKR~39.1bln on account of Construction & Transport (SPLY: PKR~30.2bln and PKR~55.2bln, respectively).

The Company draws its strength and credibility from its parent firm, ZKB, which holds a distinguished position in Pakistan’s construction industry.

As the SPV is a newly incorporated entity, it currently does not have projects of its own. The SPV has extended the funds raised through the Sukuk to the Firm via a Shariah-compliant financing facility, structured to closely mirror the terms and repayment schedule of the Sukuk. An additional agreed spread has been included in the repayment terms to cover the SPV’s operational expenses. The inflows from the Firm to the SPV, including this spread, are expected to be sufficient to fully meet the periodic Sukuk payments to investors.

Currently, the SPV is not engaged in any activity other than raising funds through the Sukuk issuance and subsequently extending these funds to the Firm as a Shariah-compliant financing facility. As a result, the SPV does not generate any independent revenue or undertake commercial operations, and therefore, no profit margins are expected to arise at the SPV level.

As an initial step, the private company "ZKB Construction Private Limited" has been established. The Firm is actively pursuing geographical diversification in its business operations, with new projects in the pipeline expected to boost revenue growth. Notably, 70% of the firm's projects are financed by the Asian Development Bank, providing a buffer against political instability and turmoil. Currently, the cash flows of the projects pledged for Sukuk are being funded by multilateral agencies.

As the SPV does not undertake any independent operations, it does not require any working capital for its own operations.

Since the SPV has been established solely to facilitate the Firm in raising funds through the bond market, it does not possess any independent sources of cash flow. To strengthen the security of the Sukuk repayments, the cash flows from the Firm’s ongoing projects—particularly those financed by multilateral agencies such as the World Bank and ADB, and with implementation timelines aligned with the Sukuk repayment schedule—have been leveraged as collateral for the Sukuk issuance. This structure ensures that the Sukuk is backed by credible, income-generating projects, providing strong assurance to investors despite being routed through a newly formed corporate entity.

Currently, seven key projects with a cumulative expected cash flow realization of approximately PKR 26bln have been earmarked for this purpose:

1. BRT Project Yellow Line
2. Abbottabad Water Supply System – Lot 1
3. Abbottabad Water Treatment Plant – Lot 2
4. Kohat Water Supply System – Lot 3
5. Peshawar Water Supply System – Lot 4
6. Mingora Greater Water Supply Scheme
7. Water Treatment Plant Mingora

(Collectively referred to as the “Projects”)

The cash flows generated from these Projects will be utilized under the defined collection mechanism and throughput arrangement of the Sukuk structure. A lien has been established over the operating accounts of the Firm (ZKB), where the actual project-related cash flows are first received. This ensures that the funds are effectively ring-fenced for Sukuk repayment. In the event that the cash flows from these initial Projects are insufficient to meet the financial obligations under the Sukuk, additional eligible projects may be added to the pool to ensure full and timely repayment to investors.

The SPV was established with an initial equity injection of PKR 0.75bln. Its capitalization structure includes a long-term Sukuk issuance of PKR 2.5bln, with an additional green shoe option of PKR 0.5bln. The Sukuk has a tenor of two years, including a nine-month grace period. The entire amount raised through the Sukuk has been extended to the Firm as a Shariah-compliant financing facility. As the Firm makes periodic repayments to the SPV in accordance with the agreed schedule, the overall leverage of the SPV will gradually decline over time.