The Pakistan Credit Rating Agency Limited
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Timnat Thomas

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PACRA Maintains Rating of Hub Power Holdings Limited | Sukuk

Rating Type Debt Instrument
(04-Jun-21 )
(25-Nov-20 )
Action Maintain Initial
Long Term AA+ AA+
Short Term - -
Outlook Stable Stable
Rating Watch - -

The rating reflects Hub Power Holdings Limited'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. Hub Power Holdings has invested in China Power Hub Generation Co. (Pvt.) Ltd. (46%) and ThalNova Power Thar (Pvt.) Ltd (38.3%). Lately, the Company has entered in a JV agreement to form Prime International Oil & Gas Company Ltd (a 50:50 joint venture company of Hub Power Holdings and ENI’s local employees), has executed definitive agreements to acquire all the upstream operations and renewable energy assets owned by ENI in Pakistan. The debt proportion was raised at the group level and the the Company's capital structure remains predominantly equity financed. China Power Hub is receiving generation payments and is expected to share profits with the Company in the form of dividend. ThalNova Power is expected to become commercially operational in Jun-22. Prime International is at the initial gestation phase. The Company has issued a sukuk of PKR 6bln in Nov-20, to settle debt at group level, fully guaranteed by HUBCO. The management has projected sizable dividends from China Power Hub. Profit and principle repayments are aligned with these inflows with sufficient cushion in initial years. These can be impacted by surging receivables due to circular debt and government intervention for payment mechanism of power projects. 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. Further, 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 Holdings 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 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.

About the Instrument
Hub Power Holdings has issued an unsecured, privately placed, Islamic Certificates ("Sukuk") of PKR 6bln to settle debt at group level. The instrument has a tenor of 5 years (grace period 3 years) and is issued at discount, covering profit payments for the first two years. Any decrease/increase in base rate (7.35%) during discounting period shall be subject to a floor equivalent to base rate as set on issue date and to a cap of 30% thereof. The differential profit will be settled through the issuer, subject to the maximum and minimum limits, at the end of the discounting period within 15 working days. Thereafter, profit will be payable semi-annually in arrears at the rate of 6M Kibor+250bps. Principle will be paid in 4 equal semi-annual installments. The sukuk is fully secured under PR-6 Regulation by following securities 1) ranking and subordinated floating charge over all present and future movable fixed and current assets of HPHL PKR 6,667mln 2) ranking and subordinated floating charge over all present and future movable fixed assets of HUBCO amounting PKR 6,667mln and 3) Revolving Cross Corporate Guarantee from HUBCO. HUBCO has a step in right where it requires the investors to sell the Sukuk to HUBCO, payment of which shall be made within 30 days.

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.