ZKB Construction Secures Strong Ratings for Sukuk Issuance

Karachi: The Pakistan Credit Rating Agency Limited (PACRA) has assigned initial entity ratings to ZKB Construction (Pvt.) Limited, a special purpose vehicle (SPV) established to facilitate Shariah-compliant funding through Sukuk issuance for Zahir Khan and Brothers (ZKB). The move allows ZKB to access capital markets indirectly, as the firm itself, structured as a partnership, cannot do so directly.

ZKB Construction (Pvt.) Limited is set to raise PKR 3 billion through long-term Sukuk issuance, including an optional PKR 0.5 billion expansion. The funds will help ZKB acquire new projects and support its working capital needs. All financial activities of the SPV are focused on this singular goal, with no plans for other commercial undertakings.

The Sukuk proceeds are secured by ZKB’s future cash flows from seven infrastructure projects, estimated at PKR 26 billion. These projects are backed by reputable agencies, including the World Bank and the Asian Development Bank, and have timelines aligned with the Sukuk’s repayment schedule.

A robust mechanism is in place to ensure Sukuk repayments, featuring a lien over ZKB’s operating accounts and a dedicated Collection Account for routing project revenues. This structure guarantees that the Debt Payment Account (DPA) and Debt Service Reserve Account (DSRA) are adequately funded for timely Sukuk obligations.

The throughput multiple, measuring project cash flow against Sukuk obligations, offers strong coverage, peaking at 46 times and decreasing to 3.2 times by maturity. This ensures sound financial health throughout the Sukuk’s tenure.

The SPV’s debt-servicing capacity relies entirely on ZKB’s financial health, as it lacks independent revenue-generating assets. The SPV’s capital structure includes an initial equity of PKR 0.75 billion, emphasizing the importance of ZKB’s sustained cash flow and project acquisition for Sukuk repayment.

The ratings reflect ZKB’s track record in major project execution and the SPV’s role in market access, with key considerations being sustained cash flow generation, new project awards, and timely Sukuk repayments.