The Pakistan Credit Rating Agency Limited
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Muhammad Atif Chaudhry

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PACRA assigns Initial rating to China Power Hub Generation Company (Pvt.) Limited | PPSTS-2 | PKR 5bln | Dec-22

Rating Type Debt Instrument
(02-Feb-23 )
Action Initial
Long Term AA+
Short Term A1+
Outlook Stable
Rating Watch -

The Ratings take comfort from the fact that this project is a priority project under CPEC and has significant economic and strategic importance. Presence of dedicated jetty at plant site and Coal Supply Agreement (CSA) with reputable international coal suppliers which ensure stable performance of the project provides more cushion to the Ratings. Going forward, due to increase in the international prices of coal the Company is currently in discussion with the GoP for alternate solutions. O&M agreement is with Hub Power Services Ltd. (HPSL) - a joint venture between Hub Power Holdings Limited and China Power International Maintenance Engineering Company Limited. The Company is in process of announcing Project Completion Date (PCD) as all the covenants have been fulfilled except that of revolving fund. In this regard, HUBCO gave a $150mln SBLC to guarantee an investment in the form of equity or subordinated debt to satisfy the funding shortfall if any, in CPHGC. The guarantee encashment notice which was served earlier has been withdrawn and SBLC has been extended on mutually agreed terms.
The Company reported a turnover of PKR 153bln during 9MCY22 (9MCY21: 80bln) and has attained a bottom line of PKR 24bln in 9MCY22 as opposed to PKR 22bln in 9MCY21. The Company aims to issue a series of commercial paper amounting to PKR ~20bln in total, in order to manage the increasing price of imported coal in the international market. Out of which PKR 13bln has already been issued. This will be in addition to the short-term borrowings already utilized by CPHGC. Till date the Company has repaid six installments of its project-related long-term debt.
However, the leverage is yet sizeable and will gradually decline along with the life of the project. Maintaining healthy debt service coverages remain important. Accumulation of circular debt may pose challenge to the cash flow management. However, the management supported by relevant business fundamentals remain committed to sustain timely debt repayments.

About the Entity
State Power Investment Company (52.5%) in collaboration with the Hub Power Company (47.5%) has setup a 1320MW coal-fired power plant in 2015 at Hub, Baluchistan. Power Purchase Agreement (PPA) is signed for thirty years. Established and registered in Hong Kong in 1994, State Power International Holding Ltd. is primarily focused on the development, construction, operation, overseas investment, and financing of power supply programmes. Whereas, HUBCO is one of the first and largest Independent Power Producers (IPP) in Pakistan to be financed by the private sector in Southern Asia. The BoD comprises of seven members, four members represent China Power International (Pakistan) Investment Limited, while three represents Hub Power Holdings Limited. The management team isled by Mr. Ren Lihui, appointed as CEO.

About the Instrument
China Power Hub Generation Company (Pvt.) Limited ("CPHGC") has issued a Rated, Unsecured, Privately Placed, Short-Term Sukuk (PPSTS- 2) on 7th Dec, 2022. The amount of the instrument is PKR 5,000mln. The purpose of the PPSTS-2 is to finance the company's working capital requirements. The tenor of PPSTS-2 is up to 6 months and carrying a profit rate of 6MK+145bps. Profit and Principal will be paid in bullet at maturity.

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.