PACRA Maintains Entity Ratings of The Hub Power Company Limited

Lahore, December 27, 2019 (PPI-OT): 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 on 17 August 2019. This is indeed a crucial development.

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 investment in Sindh Engro Coal Mining Company (SECMC). These investments are being funded through a mix of short term and long term debt. Hubco has working capital related borrowing as well. The overall debt quantum in the wake of fresh investment is huge.

The cash flows of the company can sustain the burden, which will be complemented by expected dividend inflows. The cash flows are taking positive benefit for the enhanced capacity payments, emanating from quarterly indexation. The management has forecasted sizable net cash position, reflecting dividend inflow from subsidiaries; materialization of same is crucial.

Receivables keep surging due to circular debt issue however pressure on cashflows can be eased through early settlement of receivables. Hubco has used short term debt instruments and privately placed short term sukuk to meet its working capital requirement for some time now and meeting its obligations regarding repayment of principal and interest. These streams are already accounted for in the funding plan.

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 more information, contact:
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com