Habib Construction Ltd’s profitability outlook termed negative given slowdown in project activity: PACRA

January 22, 2019 (MLN): Pakistan Credit Rating Agency has downgraded the entity ratings of Habib Construction Services Limited at ‘BBB’ for long-term and ‘A3’ for short-term, with a negative outlook forecast. Moreover, the company has been put into “Rating watch”

According to the report issued by PACRA, there is squeeze in the profitability of the company, given current economic environment and slowdown in projects related activity. This is exacerbated by a financial set-back on one of the mega project that Habib Construction was working on.

The company incurred significant loss on this project in recent year. The company is in arbitration on this project concerning de-notification of already approved rates on Non BOQ items; and delays arising from stay orders. Positive settlement of this would support Habib Construction's financial profile.

Going forward, the company is looking for different new projects. Also, Habib Construction is devising a fresh strategy to cater to the evolving dynamics. The company has delivered a number of infrastructure projects in the last couple of years and has built its repute as a "Fast Track" execution company.

The ratings are dependent on sustaining a steady revenue stream and financial risk profile. Any prolonged downturn in subdued business volume can negatively affect the ratings. Good corporate governance practice is considered essential. Adherence to debt related covenants and overall coverage matrix is essential to ratings.

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