Analyst
Faizan Arif
faizan.sufi@pacra.com
+92-42-35869504
www.pacra.com
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Related Research
PACRA Assigns Preliminary Ratings to Hub Power Company Limited | Privately Placed Commercial Paper of PKR 3.5bln
Rating Type | Debt Instrument | |
Current (17-Apr-19 ) |
||
Action | Preliminary | |
Long Term | AA+ | |
Short Term | A1+ | |
Outlook | Stable | |
Rating Watch | - |
The ratings reflect The Hub Power Company Limited (Hubco) as one of the largest power producers in country. Hubco aims to expand its generation capacity to boost country's power generation by utilizing Pakistan's indigenous natural resources. Hubco is setting up new coal power plants (i) China Power Hub Generation Company (CPHGC): 2x660MW coal fired power plant at Hub, (ii) Thar Energy Limited (TEL): 330MW mine-mouth coal fired power plant at Thar and (iii) Thalnova Power: 330MW mine-mouth coal fired power plant at Thar. Hubco's 2x660MW coal fired power project is being developed under a joint venture with China Power International Holdings Limited (CPIHL). Under this project, Hubco has currently 26% stake which it is increasing up to 46% through exercise of call option. This is being financed through multiple avenues. One leg of it is being covered through a right issue of PKR 7bln. The right is being bridged by a short-term loan of PKR 3.5bln and a CP of PKR 3.5bln – the borrowing has a lien on right on subscription account in favour of IPA (Issuing & Paying Agent). Hubco incorporated Thar Energy Limited to undertake its 330 MW open-mine mouth coal power plant in Thar. Moreover, they have also acquired 38.3% stake in Thalnova Power through Hub Power Holdings Limited. Hubco has arranged long-term debt facility of PKR ~26.5bln in 2017 to finance its growth projects i.e. CPHGC, TEL & SECMC. Due to substantial devaluation of Pakistani rupee, requirement to inject funds in these projects increased due to which the company plans to finance the excess portion of the projects equity by securing new debt instruments. Although this would increase leveraging, matching repayments with project returns should help manage the financial risk profile. Long-term vis-à-vis EBIT is manageable.
Comfort can be drawn from Hubco’s moderately leveraged balance sheet and relatively free stable cash flows. Cash flow streams of Hubco's plants are guaranteed by GoP under the Power Purchase Agreement (PPA), subject to adherence to the agreed upon performance benchmarks; this provides comfort to the ratings. Timely completion of new projects, settlement of receivable and payable and maintaining healthy debt service coverages are important.
About
the Entity
Hubco, a listed company, was incorporated in 1991. During the year, Dawood group, largest shareholder along with its associates sold its stake to Mega Conglomerate (Pvt.) Ltd, making Mega Conglomerate single largest shareholder (~19%). Mega Conglomerate (Pvt.) Ltd (19.4 %) is the single largest shareholder, followed by ABL (9.7%), Fauji Foundation (8.5%) and NBP (5%). Hubco holds 100% stake in Narowal Energy Ltd which operates a 225MW capacity oil-fired power plant at Narowal and 75% controlling interest in Laraib Energy Ltd that operates 84 MW hydel power plant. The BoD comprises eleven-members including the CEO of Hubco. BoD includes three representatives from Mega Conglomerate. Mr. Khalid Mansoor, the CEO, carries over three decades of experience in Energy & Petrochemical sectors in leading roles. He is supported by a team of experienced professionals.
About
the Instrument
After PKR 8.5bln issued from two Sukuks in March 2019 and April 2019, Hubco is in a process of issuing another unsecured, privately placed commercial paper of PKR 3,500mln to bridge the gap of proceeds from right issue, due in June 2019. The Commercial Paper, having a tenor of ninety days, carries a profit rate of 3MK + 100bps. The redemption will be in bullet at the time of maturity from the proceeds of right shares.