VIS Reaffirms Entity Ratings of Swat Expressway Planning Construction and Operation (Pvt.) Limited

Karachi: VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Swat Expressway Planning Construction and Operation (Private) Limited, known as SEPCO, at ‘A-/A2’. The long-term rating of ‘A-‘ signifies good credit quality with adequate protection factors, while the short-term rating of ‘A2’ indicates a good likelihood of timely repayment of short-term obligations. The outlook on these ratings is ‘Stable’, consistent with the previous ratings action announced in October 2023.

According to VIS Credit Rating Company Limited, SEPCO operates as a Special Purpose Company (SPC), jointly owned by Frontier Works Organization (FWO) and Pakhtunkhwa Highways Authority (PKHA). Both entities bring substantial experience in infrastructure development, particularly in public-private partnership and Build Operate and Transfer mandates. SEPCO’s primary project, the Swat Expressway, is an 81-kilometer controlled-access motorway connecting Kernal Sher Khan interchange at M-1 near Nowshera to the Chakdara Interchange in Lower Dir district. The company holds a 25-year concession agreement with PKHA for the construction and operation of the expressway.

The reaffirmed ratings reflect the mitigation of business risk, notably the revenue risk associated with toll rates. The traffic on the Swat Expressway is expected to be driven predominantly by tourism and commuter use, with significant time savings compared to alternative routes. The concession agreement includes provisions to protect toll revenue from competition by imposing higher toll rates on new routes or compensating SEPCO for any toll revenue losses. Annual toll rate adjustments further mitigate revenue risk.

SEPCO’s capacity to service debt, particularly the NBP syndicated term finance facility, is another consideration in the ratings. As of June 2024, sponsor loans constitute the majority of the debt, with the remaining portion as a syndicated term financing facility from NBP. These sponsor loans are subordinated to the NBP loan, with a support agreement ensuring coverage of any shortfalls in debt servicing or operational expenses. The rating anticipates that sponsor loan repayments will be deferred to align with SEPCO’s debt servicing capacity, focusing on repaying the NBP syndicated term financing facility.

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