Analyst
Anam Waqas Ghayour
anam.waqas@pacra.com
+92-42-35869504
www.pacra.com
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PACRA Assigns Initial Ratings to Hub Power Company Limited | Privately Placed Short Term Sukuk of PKR 4.5bln
Rating Type | Debt Instrument | |
Current (13-Dec-21 ) |
||
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 of 17 August 2019. 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 an investment in Sindh Engro Coal Mining Company (SECMC). These investments are being funded through a mix of short term and long term debt and Hubco has already deployed a sizeable fund in its ongoing projects of Thalnova and Thar Energy Ltd. Hubco has working capital related borrowing as well. Previously Hubco had issued two long term and one short term sukuk to meet its working capital needs. The short term sukuk has been redeemed and Hubco has recently issued a privately placed sukuk of PKR 4,500mln in replacement of the previously issued sukuk of the same amount. The cash flows of the company can sustain the burden, which are complemented by the dividend income received from the company’s associates. Furthermore, the company has recently received payments from government against outstanding capacity payments under the signed MoU. This has further improved the company’s cashflows providing comfort to the ratings. Hubco has used short term debt instruments and privately placed short term Sukuk to meet its working capital requirement.
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. Hubco has recently signed an agreement with Govt. actual impact of the executed agreement is yet to be seen. Timely completion of new projects, settlement of receivable and payable and maintaining healthy debt service coverages is important.
About
the Entity
Hubco, a listed company, which was incorporated in 1991. Mega Conglomerate (Pvt.) Ltd (19.5 %) is the single largest shareholder followed Fauji Foundation (8.5%), Allied Bank (4.4%) and NBP (3.6%). The remaining ownership is shared by Insurance companies, Mutual Funds and general public. Hubco holds a 100% stake in Narowal Energy Ltd which operates a 225MW capacity oil-fired power plant at Narowal. The BoD comprises nine members including the CEO of Hubco. BoD includes three representatives from Mega Conglomerate including the Chairman along with Independent Directors.
About
the Instrument
HUBCO has issued another unsecured, privately placed short term sukuk on 2nd Novermber, 2021 of PKR 4,500mln to finance Company’s working capital requirements. The Privately Placed Short Term Sukuk, having a tenor of six months, carries a profit rate of 6M KIBOR + 80bps and will mature on 2nd May, 2022. Interest and principal will be paid in bullet at the time of maturity.