HUBC ratings unchanged following negotiated settlement with govt

November 12, 2024 (MLN): Pakistan Credit Rating Agency (PACRA) has provided an update on the entity ratings of The Hub Power Company Limited (HUBC) in light of the company’s execution of a Negotiated Settlement Agreement with the Government of Pakistan and its associated entities.

The entity ratings remain unchanged from the previous rating action on June 20, 2024, with a long-term rating of "AA+" and a short-term rating of "A1+".

This agreement advances the expiration of HUBCO’s power purchase and related contracts for its 1,292 MW power generation project from the original end date of March 31, 2027, to October 1, 2024.

As part of the settlement, HUBCO has received payment for all outstanding receivables billed up to Rs36.5bn (excluding any delayed payment interest) from the Central Power Purchasing Agency (Guarantee) Limited (CPPA-G).

Additionally, any outstanding claims between HUBCO and Pakistan State Oil (PSO) will be settled, with PSO's liabilities being addressed by GoP-related entities.

Based on PACRA’s discussions with management, the Company plans to use the funds received from CPPA-G to deleverage its balance sheet by retiring both short-term and long-term debt at both the holding company and subsidiary levels.

PACRA maintains a stable outlook on HUBCO’s financial standing, which is underpinned by the Company’s strong corporate structure and pivotal role in Pakistan’s energy sector.

HUBCO directly or beneficially holds 100% ownership of 225 MW Narowal Energy Limited, a 74.95% share in 84 MW Laraib Energy Limited, a 60% stake in 330 MW Thar Energy Limited, a 47.5% shareholding in 1,320 MW China Power Hub Generation and a 38.3% ownership in 330 MW Thal Nova Power Thar Ltd.

All of the projects above have commenced commercial operations and are expected to make a substantial contribution to HUBCO’s earnings through dividends over an extended period, which forms the basis of our opinion on the financial strength of the Company going forward.

Additionally, HUBCO holds a 50% stake in Prime International Oil and Gas Company, which has acquired ENI Pakistan’s upstream operations and assets in partnership with ENI's local employees.

HUBCO also has a 49% stake in China Power Hub Operating Company (Pvt) Limited, a joint venture with China Power International Maintenance Engineering Company Limited, providing operations and maintenance (O&M) services for the Super Critical Coal Power Plant at Hub.

Furthermore, HUBCO owns an 8% minority stake in Sindh Engro Coal Mining Company, which is developing and expanding coal mining operations in Thar.

HUBCO continues to expand its strategic footprint in key sectors such as automobiles, mining, oil and gas exploration, water desalination, and renewable energy.

To further enhance its portfolio, the company also plans to acquire an additional 9.5% stake in Sindh Engro Coal Mining Company. HUBCO’s strong dividend stream from its current and future strategic investments strengthens its financial stability, leading us to maintain confidence in its ratings.

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