The Pakistan Credit Rating Agency Limited
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Madiha Sohail

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PACRA Maintains Rating of Hub Power Company Limited | Privately Placed Sukuk of PKR 7bln

Rating Type Debt Instrument
Action Maintain Initial
Long Term AA+ AA+
Short Term - -
Outlook Stable Stable
Rating Watch - -

HUBCO is a large RFO based power plant with an installed capacity of 1295MW. The rating reflects the holding company character of HUBCO with an exclusive focus on the different dimension of the energy sector. HUBCO has already expanded generation capacity and aims to further expand generation capacity to boost the country's power generation by utilizing Pakistan's indigenous natural resources. HUBCO through its 100% owned company Hub Power Holding Ltd (HPHL) invested in China Power Hub Generation Company (CPHGC) - A joint venture with China Power International Holdings Ltd (CPIHL): CPHGC (2x660MW coal fired power plant at Hub), achieved COD on 17 August 2019. Hubco is also 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. These investments are being funded through Hubco’s own cashflows and a mix of long term debt & short term debt. HUBCO has already deployed a sizeable fund in its ongoing projects of Thalnova and Thar Energy Ltd. The overall debt quantum in the wake of fresh investment is huge. HUBCO is redesigning its loan book by converting short term sukuks into long term sukuks. HUBCO currently has two long term and one short term sukuk. After the COD of CPHGC, HPHL has recognized the share of profit of PKR 8,960mln from CPHGC in its books. Furthermore, the dividend from CPHGC is expected to be materialized in FY21. Receivables keep surging due to circular debt issue.
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 for the company.

About the Entity
Hubco, a listed company, was incorporated in 1991. HUBCO itself is a large RFO based power plant and also holds multiple sizeable investments in the power sector. HUBCO has investments in Sindh Engro Coal Mining Company (SECMC), Narowal Energy Ltd, Laraib Energy, Thar Energy Ltd, Hub Power Services Ltd (HPSL) and through Hub Power Holdings have interest in China Power Hub Generation Company (CPHGC) & ThalNova Power Thar Pvt Ltd. Mega Conglomerate (Pvt.) Ltd (19.5 %) is the single largest shareholder, followed by ABL (7.7%), Fauji Foundation (8.5%) and NBP (3.6%). 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 12bln issued from three short term Sukuks in March 2019, April 2019 and May 2019. Hubco issued a long term privately placed Islamic/Conventional certificates (Sukuk) of PKR 7,000mln to partially finance the equity investment of Hubco in growth projects. The privately placed sukuk, having a tenor of four years, carries a profit rate of 3MK + 190bps. It has a grace period of two years. Furthermore, the instrument is backed by corporate guarantee from NEL for its repayment. The redemption will commence from the third year of the issue date in four equal principal installments and shall continue till the maturity of the instrument.

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.