Analyst
Mubasher Bhatti
mubasher.bhatti@pacra.com
+92-42-35869504
www.pacra.com
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PACRA Assigns Initial Ratings to Hub Power Company Limited | Privately Placed Commercial Paper of PKR 5bln
Rating Type | Debt Instrument | |
Current (06-Dec-19 ) |
||
Action | Initial | |
Long Term | AA+ | |
Short Term | A1+ | |
Outlook | Stable | |
Rating Watch | - |
The rating reflects the holding company character of Hubco with an exclusive focus on the different dimension of the energy sector. In addition to the investment book, Hubco itself is a large RFO based power plant. Hubco aims to expand generation capacity to boost the country's power generation by utilizing Pakistan's indigenous natural resources. China Power Hub Generation Company (CPHGC) - A joint venture with China Power International Holdings Limited (CPIHL): 2x660MW coal fired power plant at Hub achieved COD as on 17 August 2019. This is indeed a crucial development. Hubco is setting up two more coal power plants (i) Thar Energy Limited (TEL): 330MW mine-mouth coal fired power plant at Thar and (ii) Thalnova Power: 330MW mine-mouth coal fired power plant at Thar. Hubco also has investment in Sindh Engro Coal Mining Company (SECMC). These investments are being funded through a mix of short term and long term debt. Hubco has working capital related borrowing as well. Hubco has issued another commercial paper of PKR 5bln, which is effectively a replacement of an earlier commercial paper due in Oct-19. The overall debt quantum in the wake of fresh investment is huge. The cash flows of the company can sustain the burden, which will be complemented by expected dividend inflows.The cash flows are taking positive benefit for the enhanced capacity payments, emanating from quarterly indexation. The management has forecasted sizable net cash position,reflecting dividend inflow from subsidiaries; materialization of same is crucial. Receivables keep ballooning; earlier settlement will ease pressure on cash flows. Hubco pays dividend, which in an eventuality is an available resource, as evidenced by recent history. Hubco has used short term debt instruments and has raised borrowing through privately placed commercial paper. These streams are already accounted for in the funding plan.
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. 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 oilfired power plant at Narowal. 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
Hubco has issued another unsecured, privately placed commercial paper of PKR 5,000mln to finance Company’s working capital requirements. Instrument will be issued at the discounted value. The Commercial Paper, having a tenor of six months, carries a profit rate of 6MK + 150bps. The redemption of the instrument will be in bullet at the time of maturity.