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PACRA Assigns Preliminary Ratings to China Power Hub Generation Company (Pvt.) Limited | PPCP | Upto PKR 5,000mln

Rating Type Debt Instrument
(04-Mar-22 )
Action Preliminary
Long Term AA+
Short Term A1+
Outlook Stable
Rating Watch -

China Power Hub Generation Company Private Limited (CPHGC) is a coal based 1320MW power plant and jetty (Complex), set up by State Power Investment Corporation (SPIC), one of the top Five State-owned Power Corporations in China along with Hub Power Company of Pakistan. The financial strength and experience in the energy chain of the sponsoring companies – CPIH and HUBCO reflects positively in the ratings. Rating takes comfort from the company's strategic importance to economy through its operations, the strong business profile and from the involvement of Pakistan and Chinese governments, as this project is a priority project under CPEC. Dedicated jetty at plant site and Coal Supply Agreement (CSA) with reputable international coal suppliers ensure the stable performance of the project. New O&M agreement is under negotiation with, a joint venture between Hub Power Holdings Limited and China Power International Maintenance Engineering Company Limited. Management has put forth the requisition for true up tariff to NEPRA, the securitization at NEPRA's end has already made, Company is expecting the finalization of tariff in 2022. The Company has successfully achieved all the performance benchmarks and provided 5,500GWh of electricity to the grid during 9MCY21 against 5,214 Gwh in 9MCY20. The Company recorded a turnover of PKR 80bln during the 9MCY21 (9MCY20: 79bln) and achieved a bottom-line of PKR 22bln in 9MCY21 against PKR 26bln in 9MCY20. DSRA is being funded through operating revenues. 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 international market. This will be in addition to the short term borrowings already utilized by the Company. Till date the Company has repaid four installments (i.e. ~14%) 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
China Power Hub Generation Company (Pvt.) Limited (CPHGC), incorporated in 2015. CPHGC has been established as a Joint Venture Agreement (JVA) between China Power International Holding Limited (CPIHL) and the Hub Power Company (HUBCO). As per JVA, CPIHL through its wholly owned subsidiary China Power International (Pakistan) Investment Limited (CPIPIL) and HUBCO through its wholly owned subsidiary Hub Power Holdings Limited (HPHL) owns 52.5% and 47.5% respectively. The BoD comprises seven members, including the CEO. Four members represent China Power International (Pakistan) Investment Limited, while three represents Hub Power Holdings Limited. The management team is led by Mr. Ren LiHui, CEO. He is supported by a team of experienced professionals from both Chinese and Pakistani team members.

About the Instrument
China Power Hub Generation Company (Pvt.) Limited (CPHGC) is in process of issuing a Rated, Privately Placed, Unsecured, Commercial Paper (PPCP) of PKR 5,000mln, in Mar-22, to finance the company’s working capital requirements. The tenor of PPCP, is up to 6 months and carries a profit rate of 6 months KIBOR+100bps. Profit will be realized at the time of 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.