The Pakistan Credit Rating Agency Limited
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Shayan Farooq

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PACRA Maintains Entity Ratings of Hub Power Holdings Limited

Rating Type Entity
(21-May-21 )
(29-May-20 )
Action Maintain Initial
Long Term AA AA
Short Term A1+ A1+
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 with a generation capacity of 1,292MWs. 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 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 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 has achieved financial close and is expected to become commercially operational in Jun-22. Prime International is at the initial gestation phase. The Company has a strong financial profile with majority of its commitments as holding company already met for existing portfolio. 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. Materialization of the same is crucial. These can be impacted by surging receivables due to circular debt and government intervention for payment mechanism of power projects. Investment decisions and performance evaluations are undertaken at the parent (HUBCO) level, 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 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 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.