The Pakistan Credit Rating Agency Limited
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Ayesha Qasim

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PACRA Maintains Entity Ratings of Hub Power Company Limited

Rating Type Entity
(27-Dec-18 )
(29-Jun-18 )
Action Maintain Maintain
Long Term AA+ AA+
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The Hub Power Company Limited (Hubco) is one of the largest power producers in the country contributing ~3.5% towards the total generation of the country in FY18. Hubco aims to significantly expand its generation capacity. Hubco aims to boost the country's energy security by utilising Pakistan's indigenous natural resources. Hubco is in the process of setting up new coal power plants (i) 2x660MW coal fired power plant at Hub and (ii) 330MW mine-mouth coal fired power plant at Thar. Hubco's 2x660MW coal fired power project is being developed under a joint venture with China Power International Holdings (CPIH). A separate JV company has been setup (China Power Hub Generation Company - CPHGC) to undertake this project. Currently Hubco has 26% stake in CPHGC and it is planning to increase its shareholding upto 46%. Hubco has incorporated Thar Energy Limited to undertake its 330 MW open-mine mouth coal power plant in Thar. Company’s new projects will be financed in debt to equity ratio of 75:25. The company plans to finance equity portion of the projects by securing new debt. For this purpose it has availed long term debt facility of PKR ~21bln. Although this would increase leveraging, matching repayments with project returns should help manage the financial risk profile.
Comfort can be drawn from Hubco’s moderately leveraged balance sheet and relatively free stable cash flows. 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 and maintaining healthy debt service coverages post acquisition of new debt will remain challenging.

About the Entity
Hubco, listed on the Pakistan Stock Exchange, was incorporated in 1991. During the year, Dawood group, largest shareholder along with its associates sold its stake to Mega Conglomerate (Private) Limited, making Mega Conglomerate single largest shareholder (~19%). Mega Conglomerate Private Limited (19.4%) is the single largest shareholder, followed by ABL (9.7%), Fauji Foundation (8.5%) and NBP (5%). The remaining shareholding is held by various Financial Institutions, Joint Stock Companies and Individuals respectively. Hubco currently operates i) an oil-fired power plant of 1,292MW at Hub site. Additionally, Hubco holds 100% stake in Narowal Energy Limited which operates a 225MW capacity oil-fired power plant at Narowal and 75% controlling interest in Laraib Energy Limited that operates 84 MW hydel power plant. Hubco has established a wholly owned subsidiary - Hub Power Services Limited (HPSL) - to manage the O&M of Hubco Group’s plants. Hubco has successfully managed to meet performance benchmarks after consistent improvement via maintenance of its plants.
The BoD comprises eleven-members including the CEO of Hubco. BoD includes three representatives from Mega Conglomerate. Mr. Khalid Mansoor, the CEO, carries over three decades of experience in Energy & Petrochemical sectors in leading roles for mega size projects development, execution, management and operations. He is supported by a team of experienced professionals having relevant skills and expertise in their respective fields.

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.