PACRA Assigns Initial Rating to The Hub Power Company Limited | PPSTS | PKR 6bln | May-23

The rating reflects the holding Company character of Hubco with an exclusive focus on the different dimensions of the energy sector. The Company had signed a PPA with the government for 30 years that is valid till 2027. Hubco itself is a 1,292MW RFO based power plant situated at Mouza Kund, Hub in Balochistan. With its investment in Narowal Energy Limited, Laraib Energy Limited, China Power Hub Generation Company, Thar Energy Limited and Thal Nova Power Thar Ltd, the Group has an established footprint in the power generation sector. The total combined installed power generation capacity of Hubco was 2,921MW, which is now increased to 3,581MW. As 660MW is added to the total installed capacity of Hubco as ThalNova Power and Thar Energy Limited achieved their respective COD on 17th Feb'23 and 1st Oct'22 respectively. The Company aims at expanding its operations in oil & gas exploration, water desalination and renewable energy through this strategic investment. HUBCO completed the acquisition of Eni's business in Pakistan, through a 50:50 joint venture company, Prime International Oil & Gas Co. Generation from Hub plant generation has declined over the reporting period with 9MFY23 Net Electrical Output recorded at 205GWh (9MFY22: 863 GWh) with a load factor of 2.6%. The fall in generation represents lower demand from CPPA-G as a result of governments increasing preference for most cost-effective power generation options. During the nine-month period ended on Mar'23, the Company reported topline revenue of PKR ~35bln (Mar'22: PKR ~42bln). The Company’s profitability is supplemented from dividend from subsidiaries and income from management services provided to TEL and TNPTL accumulating to PKR 10,339mln for the nine-month period ended on March 2023. Although HUBCO has a moderately leveraged structure to support its working capital requirements and investments in subsidiaries, but its strong cash flows and group’s financial strength are robust to provide any assistance to the Company.
Hubco's strong operational performance over the years coupled with its diversified investment portfolio in the power sector contributes towards to the assigned ratings.

About the Entity
Hubco, a listed company, was incorporated in 1991. Mega Conglomerate being the largest shareholder holds 19.5% of the total ownership. while the remaining shareholding of Hubco resides with Financial Institutions (12.2%), Modarabas and Mutual Funds (11.1%), and Individuals (24.3%). The company has made sizeable investments in the power sector including power generation, oil & gas exploration, operations & maintenance services and coal mining. The BoD comprises of 3 nominees from Mega Conglomerate, 1 nominee each of NIT, Fauji Foundation and Government of Balochistan along with 2 Independent directors. Mr. Kamran Kamal is the CEO of the company. He is accompanied by a team of qualified individuals heading the respective divisions in the company.

About the Instrument
Hubco issued unsecured, privately placed short term sukuk of PKR 6bln to finance Company's working capital requirements of The Hub Power Company Limited. The instrument, having a tenor of six months, carries a profit rate of 6M KIBOR +30bps. Interest and principal will be paid in bullet at the time of maturity.