Shujat Ehsanullah Wasim
PACRA Maintains Entity Ratings of Hub Power Holdings Limited
The rating reflects Hub Power Holdings Ltd.'s ('Hub Power Holdings' or 'the Company') holdco structure with focus on expanding energy generation capacity through indigenous resources. The Company is a wholly owned subsidiary of The Hub Power Company Limited (HUBCO), a very strong player in Pakistan's energy sector with a generation capacity of 1,292MWs. Hub Power Holdings has invested in China Power Hub Generation Co. (Pvt.) Ltd. ('China Power') (~47.5%) and ThalNova Power Thar (Pvt.) Ltd ('ThalNova') (~38.3%). The Company has also entered in a JV agreement to form Prime International Oil & Gas Co. Ltd. ('Prime International') (a 50:50 joint venture company of Hub Power Holdings and ENI’s local employees), and has executed definitive agreements to acquire all the upstream operations and renewable energy assets owned by ENI in Pakistan. The investments are funded through a combination of equity and debt, as per sector's norm. However, the debt was raised at the group level and the Company's capital structure remains predominantly equity financed. Lately, the Company has incorporated China Power Hub Operating Co. (Pvt.) Ltd. ('China Power Hub') through a JV agreement with ~49% stake to operate and maintain China Power's plant. Business risk profile of the Company consists solely of profit share from associate, China Power, only; which is constantly receiving generation payments. However, the projected dividend declaration from China Power relies on tariff true-up, which is not yet achieved. Secondly, ThalNova has achieved financial close and became commercially operational in Feb-23. However, ThalNova is yet to announce project completion date (PCD). While, Prime International acquired and took charge of all the upstream operations of ENI in Dec-22. The Company has a strong financial profile with the majority of its commitments, as a holding company, have already been met for its existing portfolio. The Company issued a Sukuk of PKR 6bln on Nov-20 mainly to settle debt at group level and is fully guaranteed by HUBCO. Principle repayments are aligned with dividend inflows with sufficient cushion in initial years. Timely materialization of the same remains crucial. These can be impacted by surging receivables due to circular debt and delay in payments by the government. The ratings draw comfort from investment decisions and performance evaluations undertaken by the parent Co. (HUBCO), where robust mechanism and governance framework is already in place. The same is still evolving at the Company level. Moreover, demonstrated support of sponsors and their strong acumen of power sector dynamics benefits the ratings.
The ratings depend on timely materialization of projected timelines and generating cashflows. Consolidation of investments at holding company level and formalizing a strong and effective mechanism for monitoring performance will be critical, going forward. Maintaining strong financial profile and creating liquidity cushion remains important. Change in the government policy for payment mechanism of power projects, along with any significant delay in envisaged cashflows due to the current power sector dynamics/constraints would impact ratings.
Hub Power Holdings Ltd. is a wholly owned subsidiary of The Hub Power Co. Ltd. The Company was incorporated in 2015 as a public unlisted company under the Companies Ordinance,1984 (now the Companies Act,2017). The principal activities of the Company are to invest in new opportunities in energy sector. Mr. Aly Khan is the BoDs Chairman, while Mr. Kamran Kamal heads the Company as its CEO.