PACRA Maintains The Entity Ratings of Hub Power Holdings Limited | Sukuk

The rating reflects the Hub Power Holdings Ltd.'s ('the Company') holdco structure - wholly owned subsidiary of The Hub Power Company Limited (HUBCO), very strong player in Pakistan's energy sector with installed capacity of 3,581MWs, contributing ~17% among total IPPs in terms of capacity generation. Hub Power Holdings holds the strategic investment in China Power Hub Generation Co. (Pvt.) Ltd. ('China Power') (~47.5%) and ThalNova Power Thar (Pvt.) Ltd ('ThalNova') (~38.3%). The Company has entered into a JV agreement (50:50) with Prime International Oil & Gas Co. Ltd. ('Prime International') and acquired all the upstream operations renewable energy assets owned by ENI in Pakistan. The Company also has acquired China Power Hub Operating Co. (Pvt.) Ltd. ('China Power Hub') (49%) through a JV agreement to operate and maintain China Power's plant. The Company received major share of profit from its associate i.e. China Power Hub Generation Company (Private) Limited and ThalNova Power Thar (Private) Limited amounting to ~PKR 18.79bln (6MFY23: ~PKR 13.11bln) and ~PKR 2.3bln (6MFY23: ~PKR 32mln). The Company also received profit of ~PKR 1.56bln from its JV Prime International Oil and Gas Company Limited but a loss of ~PKR 104mln (6MFY23: Loss of ~PKR 73mln) from China Power Hub operating Company during 6MFY24. The Company received dividends from China Power Hub Generation Co. (Pvt.) Ltd. amounting ~PKR 9.2bln. The Company has also issued a PPSTS amounting PKR 6bln for its working capital requirements. While having low leverage, the Company has room to borrow. Sponsor's support and their strong acumen of power sector dynamics benefit the ratings.
The ratings depend on timely materialization of projected timelines and generating cashflows. Consolidation of investments at holding company level and formalizing a strong and effective mechanism for monitoring performance will be critical, going forward. Maintaining strong financial profile and creating liquidity cushion remains important. Change in the government policy for payment mechanism of power projects, along with any significant delay in envisaged cashflows due to the current power sector dynamics/constraints would impact ratings.

About the Entity
Hub Power Holdings Ltd. operates as a fully-owned subsidiary of The Hub Power Co. Ltd. It was established in 2015 as a publicly unlisted entity in accordance with the Companies Ordinance, 1984 (currently governed by the Companies Act, 2017). Primary focus of the company revolves around capitalizing on emerging prospects within the energy sector. The Board of Directors is chaired by Mr. Aly Khan. Whereas, Mr. Kamran Kamal leads the company as CEO.

About the Instrument
Hub Power Holdings has issued a secured, privately placed Islamic Certificates (commonly referred to as "Sukuk") PKR 6bln to address debt obligations at the group level. The Sukuk carries a 5-year tenor, with a grace period of 3 years, and was issued at a discount. This discount covered the profit payments for the initial two years of the Sukuk's term. The differential profit, associated with the discounting, was settled on November 14, 2022. Subsequently, profit payments will be made semi-annually in arrears, with a fixed rate of 6MK+250 bps. The principal amount will be repaid in four equal semi-annual installments. The Company has made its first principal Payment on May 13, 2024. The sukuk is fully secured under PR-6 Regulation of SBP.