Hubco eyes Rs56.5bln to raise stake in coal projects

KARACHI: Hub Power Company (Hubco), the country’s biggest independent power producer, has planned to raise Rs56.5 billion through a mix of bank debts and right issue to increase its equity stake in four coal mining and power projects, a brokerage reported on Tuesday.

Hubco is expected to raise $402 million through HBL equity loan of $208 million, commercial papers of $60 million, non-bank term finance certificates (TFCs) of $50 million, internal cash flows of $34 million and right issue of $50 million.

“Non-bank TFCs transaction will be completed in next 3 to 4 months,” Topline Research said, referring to a briefing to analysts by Hubco.

Hubco planned to raise stake in 1,320 megawatts of imported coal-based power project, China Power Hub Generation Company Pvt. Limited (CPHGC), to 46 percent, in 330MW local coal-fired power project, Thar Energy Limited, to 60 percent, in 330MW Thal Nova coal-based project to 38.3 percent, and in Sindh Engro Coal Mining Company to eight percent. New transmission lines for coal projects are expected to start in 2021.

Hubco’s planned issuance of 12.1 percent right share to raise Rs7 billion was part of its second round funding to finance incremental stake of 21.5 percent in CPHGC, which requires $119 million. The CPHGC project, located in Balochistan, has internal rate of return of 17 percent in dollars terms, while other three projects have IRR of 20 percent in dollar terms.

“Higher IRR on other three projects is an additional incentive to operate on local coal,” Topline Research said.

Hubco management believed that downward tariff negotiation of old plants or residual fuel oil (RFO) plants will not generate substantial savings for government as capacity purchase price portion is a smaller part of overall RFO tariff.

The government is considering issuance of second sukuk of around Rs200 billion to partly resolve circular debt. It has already issued Rs200 billion of sukuk and Hubco received Rs17 billion of the amount, while Pakistan State Oil got Rs12.5 billion.

The government has started action against power thieves and making investments in transmission and distribution (T&D) sector to counter circular debt problems. The actions have reduced transmission and distribution losses by 1.5 percent. Savings of Rs40 billion have been realised during the last six months.

“Hubco said government can potentially reduce T&D losses by around 7 to 8 percent. Tariff is also likely to further increase that will improve cash flows of Disocs (distribution companies),” the brokerage said.