Hub Power Declares 12% Right Shares:Detailed Analysis

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  • 140 million Right shares to be offered at Rs. 50 each
  • Company expects to raise Rs. 7 billion for its Coal Power Plant

Hub Power Company (HUBC) filed a notice with Pakistan Stock Exchange where it announced the issuance of 12% right share to meet its expansion needs.

The Company will issue 140 million shares at the price of Rs. 50 per share which will lead to raising Rs. 7 billion in total. The proceeds from the issue will be utilized to increase the HUBC stake in China Power Hub Generation Company from 26% to 47.5%.

Why the need of Right Shares?

HUBC is involved in the extensive expansion which has led to cash flow constraints, thus the company has resorted to right option for raising funds. Hub power is still in the process of exercising its call option in China Power Hub Generation Company. Moreover, the company’s investment in TEL and TNPTL are also in the process of achieving financial close.

Capital requirement for HUBCO new projects is estimated to be around Rs27 billion in 2019. Out of this Rs20 billion is expected to be financed through Bank Borrowings. While issuance of right share is expected to contribute Rs. 7 billion.

How much value accretion for HUBCO?

HUBC has provided financial projections for next five years which incorporates impact of upcoming projects. Company profitability is expected to reach Rs. 32 billion in year 2023 from Rs. 6.9 billion in this year. the Projections are mentioned below

Source: HUBC/ PSX Notice

Market Feedback

Analysts were expecting a Right Share Issuance to the tune of Rs. 10 billion at least. However, the announced right shares issuance is Rs. 3 billion less than expected leading to the view that capital requirements are less than projected. Thus the market takes the announcement positively.

The stock was at upper lock after the announcement trading at Rs. 76.99/share ( up 5% )

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