The Board of HUBC has approved an extension of Sponsor Support Contribution Letters of Credit (SSC LCs) for Thar Energy Limited (TEL) and ThalNova Power Thar (Pvt) Ltd (TNTPL), amounting to up to US$31mn (PkR8.8bn) and US$20mn (PkR5.7bn), respectively. This is due to the demand from project lenders to extend SSC LC tenors until Jul ’34.

The purpose of the extension is to cover disputed HVDC liabilities and any debt servicing shortfalls until loan maturity. Moreover, both power plants are approaching the declaration of the Project Completion Date (PCD), an important milestone that would enable dividend payouts from excess cash flows.

Notably, TEL achieved COD in October 2022, while TNTPL reached COD in February 2023, compared to the targeted COD date of March 2021 for both plants. For this reason, CPPA-G has raised invoices for these delays. However, the company maintains that COVID-19 caused the COD delay and the unavailability of coal supply from SECMC, while the COD of the HDVC line was also not achieved by NTDC at the plants. For this reason, the company claims to have no exposure to the demanded liquidated damages of US$1.9 million per month for the HVDC line, as well as US$0.75 million per month for delayed commissioning.

In summary, we expect that the renewal of the guarantee above will not impact near-term cash flows. Furthermore, we had already assumed conservative payouts by the plants in this regard, so they would easily absorb any adverse decision regarding liquidated damages and would not materially affect our base valuation of PkR151/sh.

Courtesy- AKD Research