Home »BR Research » Power Generation » HUBC’s strategic alliance

Becoming chums is the corporate world is usually accompanied with new partnerships, deals, projects and expansion plans. One announced yesterday was that of Hub Power Company Limited and Fauji Fertilizer Company Limited. In two separate notices to the stock exchange, the two giants announced the offer (by HUBC) and acceptance (by ­­FFC) of equity divestment plan in Thar Energy Limited (TEL), which is a 330MW mine-mouth local coal power plant in Thar.

The notice(s) declare that HUBC has decided to divest around 40 percent stake in TEL by bringing in FFC as a strategic shareholder with 30 percent equity stake. The remaining 10 percent share has decidedly been given to the projects EPC China Machinery Engineering Corporation (CMEC).

So what benefits does this partnership bring? It is basically a partnership between HUBCs operational and FFCs financial muscle. Yesterdays column (Read IPP Roundup Published on March 15, 2017) highlighted that Hub Power Company Limiteds expansion into coal can help it offset the negativities of the piling circular debt.

Apart from the 100 percent stake in TEL (which will now come down to 60 percent), HUBC also has 46 percent stake in China Power Hub Generation Company Limited (CPHGCL) where 2x660MW coal power plants will likely be added under CPEC umbrella. Moving aggressively into coal expansion would have had serious liquidity strains and that too when circular debt is back. The 40 percent stake sale in TEL will likely lessen this liquidity burden for Hub Power.

On the other hand, Fauji Fertilizer will be the support that lessens HUBCs burden. Not only that, FFC will also gain as the fertilizer giant has been venturing into the power sector it has commissioned the countrys first ever wind power plant of 49.5MW.

While Hub Powers share price slipped after the announcement, the move might prove successful in the long-term when it is able to show better liquidity position. HUBC might have moved in the right direction by taking up local coal, but does this raise alarm bells for upcoming plants on imported coal? Well not likely as HUBC has not given up on its imported coal plants. After the government placed a ban on imported fuel power plants, it not only admitted the application of Nishat Energy Limited (NEL) for the grant of generation license for its 660MW importer coal based power plant (which the company abandoned earlier in June 2016), but also allowed Hub Power Company to set up its two power plants of 1,320MW (660MW each) on imported coal.

Copyright Business Recorder, 2017

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