Hubco to raise Rs7 billion to increase stake in power project

KARACHI: Hubco, the country’s biggest independent power producer, has planned to raise an estimated seven billion rupees through right issue in a bid to increase its stake in a 1,320 megawatts coal-fired power project being set up under the Chinese corridor framework, analysts said on Monday.

Hub Power Company Limited (Hubco) decided to offer its 140 million ordinary shares of Rs10 each, constituting 12.1 percent. Issue price per share will be Rs50/share, including premium of Rs40/share.

The company said the funds from the right issue would be used to increase the investment stake in China Power Hub Generation Company (CPHGC), a joint venture of China Power International Holding Limited and Hubco set up for 1,320MW of coal-fired power project in Balochistan.

“The funds from the rights issue will contribute towards the increase investment stake in CPHGC from 26 percent to 47.5 percent, via HPHL (Hub Power Holdings Limited),” Hubco said in a filing with the stock exchange. “The share transfer books of the company will be closed from April 23, 2019 to April 30, 2019 (both days inclusive) to determine the entitlement of right shares.”

The imported coal-fired power project is a priority project under the China-Pakistan Economic Corridor for which an agreement was signed in 2016. The project is expected to be in commercial operation by the mid of this year.

Hubco said the right issue is being made at a price, which is far less than the current share price in the market. “There is no major investment risk associated with the right issue,” it added. “Normal risks with the business will remain, however, the company is well placed in the market with proven track record which will help mitigate such risk factors.”

Analysts said Hubco is expected to raise seven billion rupee from the right issue, assuming the right issue gets completely subscribed. “Hubco needs $163 million to meet equity contributions in HPHL, Thal Nova Power and Thar Energy Limited,” Zeeshan Afzal, an economist at Insight Securities said.

“Though the right issue would help, we believe the company would still be left with a funding gap of Rs16.7 billion to fulfill equity requirements, while the unutilised financing facility available is Rs15.6 billion,” Afzal said.

Afzal further said earnings per share (EPS), based on pre-right shares, is expected to decline 18 percent during the current fiscal year of 2018/19 to Rs6.05. But, EPS is expected to increase by 50 percent to Rs9.07 in FY2020, according to Hubco’s financial projections.