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Muhammad Atif Chaudhry

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PACRA assigns Initial rating to China Power Hub Generation Company (Pvt.) Limited | PPSTS-3 | PKR 7bln | Mar-23

Rating Type Debt Instrument
(02-Jun-23 )
Action Initial
Long Term AA+
Short Term A1+
Outlook Stable
Rating Watch -

The ratings take comfort from the fact that this project is a priority project under CPEC and has significant economic and strategic importance. Presence of a dedicated jetty at the plant site and the Coal Supply Agreement (CSA) with reputable international coal suppliers which ensure the stable performance of the project provides more cushion to the ratings. Going forward, due to the increase in the international prices of coal the Company is currently in discussion with the GOP for alternate solutions. O&M agreement is with Hub Power Services Ltd. (HPSL) - a joint venture between HubPower Holdings Limited and China Power International Maintenance Engineering Company Limited. The Company has announced the Project Completion Date (PCD) on 23rd Feb 2023. CPHGC has also finalized the tariff with NEPRA recently. The Company reported a turnover of PKR 31.3bln during the 3MCY23 (3MCY22: PKR 48.3bln, CY22: PKR 190.7bln, CY21: PKR 100bln) and has attained a bottom line of PKR 11.65bln in 3MCY23 (3MCY22: PKR 9.13bln, CY22: PKR 46.55bln, CY21: PKR 19bln). DSRA is maintained by the company and is funded by internal cashgeneration. The company has paid off six installments of the long-term project-related debt. In reference to short-term borrowings, CPHGC has procured working capital lines of PKR 66.7bln out of which short-term borrowing utilization stood at PKR 45.9bln at end Mar23. In order to cater the short term working capital needs the Company has issued the PPSTS-3 amounting PKR 7bln. Nevertheless, the leverage is still significant and will progressively decrease over the course of the project. Circular debt buildup could make managing cash flow difficult. The management, however, is steadfast in its commitment to maintaining on-time debt repayments and is supported by pertinent business fundamentals.

About the Entity
State Power Investment Company (52.5%) in collaboration with the Hub Power Company (47.5%) has setup a 1320MW coal-fired power plant in 2015 at Hub, Baluchistan. It's construction was completed in 2018 and the plant commenced its operations in 2019. Power Purchase Agreement (PPA) is signed for thirty years. Established and registered in Hong Kong in 1994, State Power International Holding Ltd. is primarily focused on the development, construction, operation, overseas investment, and financing of power supply programmes. Whereas, HUBCO is one of the first and largest Independent Power Producers (IPP) in Pakistan to be financed by the private sector in Southern Asia. The BoD comprises of seven members, 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, appointed as CEO. He is accompanied by a team of qualified and experienced Chinese and Pakistani individuals.

About the Instrument
China Power Hub Generation Company (Pvt.) Limited (CPHGC) has issued a rated, unsecured, privately placed, short-term Sukuk (PPSTS-3) on 29-Mar-23. The amount of the instrument is PKR 7,000mln. The purpose of the PPSTS-3 is to finance the company's working capital requirements. The tenor of PPSTS is up to 6 months and will carry a profit rate of 6MK+70bps. The profit and principal will be paid at maturity. The PPSTS is unsecured.

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.