The Pakistan Credit Rating Agency Limited
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Faiqa Qamar

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PACRA Assigns Initial Entity Ratings to Hub Power Holdings Limited

Rating Type Entity
(29-May-20 )
Action Initial
Long Term AA
Short Term A1+
Outlook Stable
Rating Watch -

The ratings reflect Hub Power Holding Limited's ('Hub Power Holding' or 'the Company') holding company structure with strong focus on expanding energy generation capacity by utilizing indigenous resources and its association with the Hub Power Company Limited (HUBCO). The Company is a wholly owned subsidiary of HUBCO, a very strong player in Pakistan's energy sector with generation capacity of 1292MWs. Hub Power Holding has invested in two power projects - China Hub Power Generation Company (Pvt.) Ltd. (46% stake) and ThalNova Power Thar (Pvt.) Ltd. (38.3% stake). These investments are funded through a combination of equity and debt, as per norm in power sector. However, the debt was raised at the group level and the the Company's capital structure remains predominantly equity financed. China Hub Power became commercially operational in Aug-19 and has started receiving payments for generation, an important development. ThalNova Power is yet to achieve financial close and is expected to become commercially operational in FY22. The Company has a very strong financial profile with majority of its commitments as holding company already met for existing portfolio. Going forward, the Company intends to increase leveraging to settle the debt at Group level and fund new investments. The management has projected sizable dividend income from China Hub Power and profit and principle repayments of Hub Power Holding are aligned with these inflows with sufficient cushion in initial years. Materialization of the same is crucial. These can be impacted by surging receivables in the power due to circular debt and recent government intervention where payment mechanism of power projects is being reviewed. Investment decisions and performance evaluations are undertaken at the parent level (HUBCO), where robust mechanism and governance framework is in place. The same is still evolving at the Company level. The ratings take comfort from demonstrated support of sponsors and their strong acumen of power sector dynamics in Pakistan.
The ratings depend on timely materialization of projected cashflows and meeting project timelines. Consolidation of investments at holding company level and formalizing a strong and effective mechanism for making investment and monitoring performance will be critical, going forward. Maintaining strong financial profile and creating liquidity cushion remains important. Any significant delay in envisaged cashflows due to prevailing power sector dynamics/constraints would impact ratings negatively.

About the Entity
Hub Power Holding Limited is a wholly owned subsidiary of The Hub Power Company Limited. The Company was incorporated in 2015 as a public unlisted company under the Companies Ordinance, 1984 (now the Companies Act, 2017). Mr. Khalid Mansoor is the Chairman of the BoD and Mr. Ruhail Muhammad is CEO of the Company. The principal activities of the Company are to invest in new opportunities in energy sector.

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.