Hubco offers shareholding to Chinese company, Fauji Fertilizer

Objective is to build ‘strategic alliance instead of attracting equity’, says CEO

KARACHI: The Hub Power Company Limited has offered significant shareholding in its Thar coal-fired power project to Fauji Fertilizer Company and China Machinery Engineering Corporation, according to a bourse filing Wednesday.



“The company has decided...to divest around 40% of its shares in Thar Energy Limited (TEL). The company would bring in Fauji Fertilizer Company Limited (FFC) as a strategic shareholder with 30% equity stake and China Machinery Engineering Corporation (CMEC)...with up to 10% equity stake,” Hubco company secretary, Shamsul Islam, said in a communiqué to the Pakistan Stock Exchange (PSX).

CMEC is also contractor of the TEL project, as it would be doing engineering, procurement and construction of the project. FFC is Pakistan’s largest fertiliser producer.

Hubco Chief Executive Officer Khalid Mansoor told The Express Tribune the prime objective of the partnership is to build a strategic alliance instead of attracting equity.

The government aims to bring new power projects on indigenous coal rather than on imported fuels in the future. “The Hub Power Company and Fauji Fertilizer Company have financial strengths to implement future plans,” he said.

“The partnership is developed in the long view. Thar power project is one of the projects to be done by the two financially sound companies in the future,” he said.

“The financial close of the Thar project (330-megawatt) is expected in September,” Mansoor said.

The company is in the final stages of signing the agreement with Sindh Engro Coal Mining Company (SMCEC) for supply of coal from Thar block-II for the power project, he said.

Interestingly, Hubco earlier injected $20 million equity in the SECMC mining project.

Ground work on the site has already commenced, the power project is expected to kick-start commercial operations in around three-and-half year from the time of financial close and that will be around June 2019 when SECMC would start extracting coal from Thar.



The strategic alliance is subject to an agreement to be reached between the stakeholders on shareholders’ matters and the obtaining of all the necessary corporate and regulatory approvals by the companies involved, for example, Hubco, TEL, FFC and CMEC, the communiqué to PSX added.

Hubco share price dropped 1.18%, or Rs1.57, to Rs130.43 with a volume of 857,600 shares on Wednesday. FFC’s share improved 0.69%, or Rs0.75, and closed at Rs108.57 with a volume of 1.09 million.

Thar Energy Limited is a special purpose company, which is setting up 330-megawatt mine mouth power project at Thar. The project is part of the mega China-Pakistan Economic Corridor. The cost of the project is estimated at $497.7 million, which will comprise of 75% debt and 25% equity.

National Electric Power Regulatory Authority has awarded Hubco a levelised tariff of Rs8.2550/kWh (US cent 8.5015/kWh). This is including return on equity at 30.65% (Rs1.4075/kWh).

FFC, chief executive and managing director, Shafqaat Ahmed said in a statement “this strategic partnership will open up new avenues of business growth, whereas the excellent financial position, credibility and best business practices of the two corporate giants will provide synergy and confidence for all the stakeholders.

“We expect the cash outflow of FFC to be Rs3,919 million...while the project is expected to add Rs5.46/share,” a brokerage house said.

Published in The Express Tribune, March 16^th, 2017.

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