The Pakistan Credit Rating Agency Limited
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Anam Waqas Ghayour

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PACRA Assigns Initial Entity Ratings to ThalNova Power Thar (Pvt.) Limited

Rating Type Entity
Action Initial
Long Term A-
Short Term A2
Outlook Stable
Rating Watch -

Hub Power Holdings Ltd. (Hub Power Holding) along with Thal Power (Pvt.) Limited and Nova Powergen Limited are setting up a 330MW coal power plant, under the umbrella of ThalNova Power Thar (Pvt.) Limited (ThalNova). Hub Power Holding reflect very strong credentials, as also reflected by their Entity Ratings (AA+). The financial strength and experience in the energy chain of the sponsoring companies is positive to the ratings, while the controlling interest lies with Hub Power Holding. ThalNova has been awarded an upfront tariff, with the payments to be received from CPPA-G backed by the sovereign guarantee. China East Resource Import & Export Corporation and China Machinery Engineering Corporation are the EPC contractors; comfort is drawn that they have ~30 years of worldwide experience. Currently, project is exposed to completion risk because as of June-2021, 46.93% construction work is completed.
The EPC contractors have provided bank guarantees in the form of performance bond and warranty bond. These bank guarantees provide additional cushion for the sustainable financial risk profile. Further, the company will maintain the Debt Service Reserve Account, which will be filled by 6 months SBLCs, providing coverage of six months on its financial obligations till maturity. Moreover, the operations of the plant are exposed to resource risk, because the Thar Block II is under construction but SECMC (coal supplier) has notified to ThalNova that they are confident of completing construction by Mar-2022 and will supply them the required coal.
The Company has signed Power Purchase Agreement (PPA) with CPPA-G and as per the PPA, in case of no demand from the power purchaser, CPPA-G shall be liable to pay the capacity payments at applicable tariff rates. The Government of Pakistan has given payment guarantee against dues from CPPA-G. The Company has adequate insurance coverage to cover the risk of business interruptions, marine & erection, startup-delay etc. Furthermore, external factors such as any adverse changes in the regulatory framework or prolonged delay in achieving COD may impact the ratings.

About the Entity
ThalNova Power Thar (Pvt.) Limited was incorporated in Pakistan on April 18, 2016 as a limited company under the repealed Companies Ordinance, 1984. The 330MW coal IPP is setting up in the energy park located in Block II of the Thar coalfields in Sindh. Mr. Saleemullah Memon is the CEO of the company. Mr. Memon has over twenty years of experience in the energy and manufacturing sector. Mr. Memon holds an MBA in Finance. The estimated cost of the project is USD 527mln. Debt financing constitutes 75% of the project cost i.e. USD 395mln, which is financed from local and foreign financial institutions. Both the local loan and foreign loan has a tenure of 14 years with repayment in 10 years. Furthermore, the key sponsor HUBCO has an exclusive focus on the different dimension of the energy sector. HUBCO itself is a large RFO based power plant and 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 Holding in addition to ThalNova Power Thar Pvt. Ltd have interest in China Power Hub Generation Company (CPHGC).

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.