Lahore, June 21, 2021 (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. 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). Moving forward, Hubco is looking to explore growth opportunities in diversified areas including water desalination, renewable energy, upstream oil and gas, mining and infrastructure.
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 and 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.
Currently Hubco has issued two long term and one short term sukuk to meet its working capital needs. 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 the dividend inflows mainly from an associate (China Power Hub Generation Company Limited. The cash flows are taking positive benefit for the enhanced capacity payments, emanating from quarterly indexation. Receivables keep surging due to circular debt issue however pressure on cashflows can be eased through an early settlement of receivables.
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. 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 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.
For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com