Hubco issues Rs6bln sukuk for capital expenditures

KARACHI: Hubco, the country’s biggest independent power producer, has issued Rs6 billion worth of shariah-compliant bond to finance its capital expenditures, the company said on Friday.

Hub Power Company (Hubco), through its wholly-owned subsidiary, Hub Power Holdings Limited, issued the discounted sukuk with Arif Habib Limited as its arranger and Meezan Bank Limited as shariah adviser. The sukuk is subscribed by financial institutions, investment companies and other eligible institutions. “The purpose of the 5-year tenor sukuk is to finance the ongoing capital requirements of the company,” Hubco said in a statement. “With an aggressive growth plan and focus on growing the shareholder value, Hubco is pursuing opportunities in the domain of thermal energy, alternate energy and water treatment.” Currently, Hubco has an installed capacity of producing more than 2,920 megawatt through its four plants in Hub, Narowal and Kashmir.

Businesses are seen approaching Islamic financial system that has sufficient liquidity. Sukuk market is consistently gaining ground in the country. Loss-making Pakistan International Airlines is also expected to raise up to Rs20 billion through sukuk with BankIslami to act as the financial adviser and joint bookrunner. The Hubco’s decision followed a sukuk funding to K-Electric. In August, K-Electric launched a sukuk of up to Rs25 billion for a period of seven years.

Analysts said sukuks can help diversify the investment portfolio and can be used as an effective instrument for risk reduction.

Power sector’s circular debt is adversely affecting businesses and creating liquidity instability in the market.

Circular debt in the power sector crossed Rs2 trillion as of June this year due to higher losses, power theft, inefficiencies and low recovery of bills from consumers by power distribution companies. This high debt level means serious liquidity issue in the entire energy chain, leading to frequent power outages.

Hubco is the only power producer in Pakistan with four projects listed under the China-Pakistan Economic Corridor framework, namely imported coal-based China Power Hub Generation Company, Thar Energy Limited and Sindh Engro Coal Mining Company. Both the 330MW power plants in Thar Block II have achieved their financial close and are expected to meet their commercial operations datein 2021 and 2022, respectively. “Being a domestic source of energy fuel, the power generation and mining projects in Thar coal are expected to fortify the energy security of the country and would bring about substantial savings in foreign exchange of the country,” Hubco said.