The Pakistan Credit Rating Agency Limited
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Arsalan Ahmed

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PACRA Assigns Initial Entity Ratings to China Power Hub Generation Company (Pvt.) Limited

Rating Type Entity
Action Initial
Long Term AA
Short Term A1+
Outlook Stable
Rating Watch -

State Power Investment Corporation (SPIC), one of the top Five State-owned Power Corporations in China along with Hub Power Company of Pakistan, has set up a coal based 1320MW power plant (Complex) - China Power Hub Generation Company Private Limited (CPHGC). The financial strength and experience in the energy chain of the sponsoring companies – CPIH and HUBCO – is positive to the ratings. The rating incorporates the strong business profile (guaranteed 50% offtake under PPA), timely commissioning of the plant, achieved on 17th August 2019 within the approved tariff limit and commencement of billing/receipts mechanism. Meanwhile, the Implementation Agreement provides sovereign guarantee, given adherence to agreed performance benchmarks. The lenders benefit from ‘Overseas Instrument (Debt) Policy’ issued by Sinosure specifying the lenders as ‘insured’ under the policy. Dedicated jetty at plant site and Coal Supply Agreement (CSA) with reputable international coal suppliers ensure the stable performance of the project. Two years O&M contract has been outsourced to the consortium contractors i.e. China Energy Engineering Group. Comfort is drawn from the experience of these contractors and the involvement of Pakistan and Chinese governments, as this project is a priority project under CPEC. Company's both units were successfully connected to and are providing electricity to the grid. The company has successfully provided 153GWh of electricity to the grid from COD to end-Oct 2019. DSRA will be fully funded through tariff and capacity payments may be diverted to DSRA account, if required to make balance equivalent to debt servicing due for the upcoming six months. The leverage is sizeable and will gradually decline along with the life of the project.
Sustained good financial discipline and upholding strong operational performance in line with agreed performance levels, maintaining healthy debt service coverages remain important. Accumulation of circular debt may pose challenge to the cash flow management. However, the management supported by relevant business fundamentals remain committed to sustain timely debt repayments. External factors, if any, leading to weakening of financial profile may impact negatively.

About the Entity
China Power Hub Generation Company (Pvt.) Limited (CPHGC), incorporated in 2015. CPHGC has been established as a Joint Venture Agreement (JVA) between China Power International Holding Limited (CPIHL) and the Hub Power Company (HUBCO). As per JVA, CPIHL through its wholly owned subsidiary China Power International (Pakistan) Investment Limited (CPIPIL) and HUBCO through its wholly owned subsidiary Hub Power Holdings Limited (HPHL) owns 52.5% and 47.5% respectively. The BoD comprises seven members, including the CEO. Four members represent China Power International (Pakistan) Investment Limited, while three represents Hub Power Holdings Limited. The management team is led by Mr. Zhao Yonggang, CEO. He is supported by a team of experienced professionals from Pakistan and China.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.