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Hub Power Company (HUBC): Analyst Briefing Key Takeaways

Hub Power Company Limited (HUBC) is looking to investment worth US$5bn, where total equity portion of the company is around US$402mn in four projects. Projects under consideration of HUBC are 1) China Power Hub Generation Company Pvt. Limited (CPHGC), a 46% owned 1320 MW coal based power plant, 2)Thar Energy Limited (TEL), a 60% owned 330 MW local coal, 3) Thal Nova, a 38.3% owned 330 MW coal based, and 8% owned Sindh Engro Coal Mining Company (SECMC).

Following are the key takeaways of today’s session:

• Equity portion of US$402mn is expected to be raised through HBL equity loan of US$208mn, commercial papers of US$60m, Non Bank TFCs of US$50mn, Internal cash flows of US$34mn and Right issue of US$50mn. Out of this, Non Bank TFCs transaction will be completed in next 3-4 months.
• Company’s issuance of 12.1% right share to raise Rs7bn was part of its second round funding to finance incremental stake of 21.5% in CPHGC, which require US$119mn.
• The CPHGC project has US$ IRR of 17%, while other three projects have US$ IRR 20%, few ppts higher IRR on other 3 projects is like an additional incentive to operate on local coal.
• Management believes, downward tariff negotiation of old plants or RFO plants will not generate substantial savings for Govt. as CPP portion is smaller part of overall RFO tariff.
• is also considering issuance of second Sukuk of around Rs200bn to partly resolve circular debt. To note, in first issuance, HUBC got Rs17bn. Out of this, Rs12.5bn were paid to PSO.
• New transmission line for coal projects is expected to start in 2021.
• To counter circular debt problems, Govt. has started action against power thieves and investments in T&D sector. Cumulatively these actions have reduced T&D losses by 1.5% or savings of Rs40bn are realized in last six months. As per management Govt. can potentially reduce T&D losses by around 7-8%. Further, tariff is also likely to increase, that will improve cash flows of Disocs.
• Earnings in below mentioned table are increasing during FY21 substantially, as FY21 will be first year of dividends from CPHGC from 2 years of profits. These are managements forecast with assumption of 100% payout from upcoming projects.