The Pakistan Credit Rating Agency Limited
Press Release


Timnat Thomas

Applicable Criteria

Related Research

This press release is being transmitted for the sole purpose of dissemination through print/electronic media. The press release may be used in full or in part without changing the meaning or context thereof with due credit to PACRA

PACRA Maintains Rating of The Hub Power Company Limited | PP Sukuk

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

The rating reflects the holding company character of Hubco with an exclusive focus on the different dimensions 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. Hubco is setting up two coal power plants (i) Thar Energy Limited (TEL): 330MW and (ii) Thalnova Power: 330MW, mine-mouth coal-fired power plants at Thar. Hubco also has an investment in Sindh Engro Coal Mining Company (SECMC) and China Power Hub Generation Co (CPHGC). Through Hub Power Holdings Ltd, a wholly-owned subsidiary of Hubco, entered in JV agreement (50:50) with ENI, Pakistan’s employees to form Prime Int. Oil & Gas Co Ltd. Both parties have executed the sale and purchase agreement to acquire upstream operations and renewable energy assets owned by ENI in Pakistan. 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.
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. The government has started paying IPPs as per agreement and Hubco has received its share against outstanding receivables which improves the liquidity of the Company. The concession agreed under the agreement will be given once the remaining amount is received by the Company. The 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 are important.

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 (5.38%), Fauji Foundation (8.5%), Jubilee Life Insurance (4.39%) 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 current CEO, has recently resigned from the post and new CEO Mr. Kamran Kamal, CEO of the group company (Laraib Energy) will take charge from 1st July, 2021.

About the Instrument
Hubco issued a rated, secured, privately placed (subsequently listed) Islamic certificates (Sukuk) of PKR 7,000mln in Aug'19 to partially finance the equity investment of Hubco in growth projects. The Sukuk has a tenor of four (4) years from the issue date inclusive of a grace period of two (2) years. The profit is being paid quarterly in arrears at the rate of 3M Kibor+1.9% p.a. Principal will be paid in four equal semiannual instalments which will commence from two years after the issue in February 2022. The instrument is secured by a corporate guarantee for profit/principal payments and the issue amount, claim on assets and pledge of shares. There is also a prepayment option attached to the Sukuk that would give an option to Hubco to prepay the issue amount after the expiry of the grace period with thirty (30) days prior written irrevocable notice to the Trustee.

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.