February 8, 2019 (MLN): Pakistan Credit Rating Agency has assigned initial rating to Hub Power Company Limited’s Commercial Paper Sukuk at ‘A1+’, with a stable outlook forecast.
The rating reflects Hub Power Company Limited (Hubco) as one of the largest power producers in the country, as it aims to significantly expand its generation capacity to boost the country's energy security by utilizing Pakistan's indigenous natural resources.
For this purpose, Hubco is setting up new coal power plants i.e. (i) China Power Hub Generation Company: 2x660MW coal fired power plant at Hub, (ii) Thar Energy Limited: 330MW mine-mouth coal fired power plant at Thar and (iii) Thalnova Power: 330MW mine-mouth coal fired power plant at Thar.
Hubco's 2x660MW coal fired power project is being developed under a joint venture with China Power International Holdings Limited (CPIHL). Currently Hubco has 26% stake in CPHGC and it is planning to increase its shareholding up to 46%.
Moreover, Hubco has incorporated Thar Energy Limited to undertake its 330 MW open-mine mouth coal power plant in Thar. While, Hubco has acquired 38.3% stake in Thalnova Power through Hub Power Holdings Limited.
The company plans to finance equity portion of the projects by securing new debt instrument. Previously, it has availed long term debt facility of PKR ~26.5bln. Furthermore, company is in the process of issuing Rs 4 billion Commercial Paper Sukuk that would partially be used for investment in Thalnova Power and partially for working capital requirements of Hubco. This would also ensure cushion in the available short-term lines of the company. Although this would increase leveraging, matching repayments with project returns should help manage the financial risk profile.
Comfort can be drawn from Hubco’s moderately leveraged balance sheet and relatively free stable cash flows. Cash flow streams of Hubco's plants are guaranteed by GoP under the Power Purchase Agreement (PPA), subject to adherence to the agreed upon performance benchmarks; this provides comfort to the ratings. Timely completion of new projects, settlement of receivable and payable and maintaining healthy debt service coverages are important.
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