If there’s one company that has been snatching the limelight in the power sector, it has to be Hub Power Company Limited, HUBCO (PSX: HUBC). In the last couple of months some newsworthy developments in the coal segment have taken place for the IPP, which one could expect to incite the investors.
Amid the changing power generation mix, HUBCO has recently completed the acquisition of 37 percent stake in ThalNova Power Thar (Pvt) Limited through its subsidiary, Hub Power Holdings Limited. Back in 2016, ThalNova was granted a power generation license for setting up a 330-megawatt coal-fired power plant at Thar coal mine.
The IPP has just signed a 330-megawatt financing document with Thar Energy Limited during the 8th Joint Cooperation Committee (JCC) in Beijing. HUBCO had earlier signed a shareholders’ agreement with Fauji Fertilizer Company Limited and CMEC Tel Power Investments Limited for equity investment of 30 percent and 10 percent respectively, in the 330MW mine mouth lignite-based power plant at Block II, Thar. The project is a first when it comes to using local coal.
Meanwhile, the latest on HUBCO is that the IPP has also decided to increase its shareholding by almost double through its subsidiary Hub Power Holdings Limited in China Power Hub Power Generation Company (Pvt) Ltd (CPHGC) – one of the largest imported coal CPEC projects - from 26 percent to 47.5 percent. CPHGC is a JV between HUBCO and China Power International Pakistan Investment Limited (CPIPIL) for setting up a 2x660-megawatt imported coal-based power plants at Hub, Balochistan. The project is said to reach its commercial operation date by the end of 2020.
But the stock performance doesn’t tell the same story (see illustration). HUBCO’s share prices have sluggishly treading along the KSE100 index with no exciting narrative. While there are a couple of general market reasons for the stock being under pressure even after rupee depreciation like the overall market performance and the imminent threat of the circular debt making power sector stock trade cheaply, there may be a couple of firm-specific factors that have been a drag on the stock prices.
The stance on furnace oil is one dampener; HUBCO’s base plant at Hub (1200MW) and power plant at Narowal (214MW) are RFO-based thermal power plants, and the power company has been a victim of lower dispatches due to the induction or RLNG and other fuels into the mix with RFO losing its share.
The second factor that has reigned in the stock price is the rumoured rights issue. According to a research note by Elixir Securities, right issue cannot be ruled out at a time when the company is facing around Rs8 billion shortfalls to fund its upcoming expansion projects (Rs34.6 billion project financing requirement versus credit line commitments at Rs26.5 billion). The company’s working capital issues can also be seen from no payout in the latest quarter. These, along with the recent increase in authorised share capital and persistent cash flow issues, point towards a right issue on the horizon.
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