Hub Power Company (Hubco) has kicked off talks to acquire a stake in the country’s top coal-rich mine that is supplying black gold to run power plants, believing that the acquisition will prove financially beneficial.
Besides, Kot Addu Power Company (Kapco) is attempting to acquire a wind power project of 49.5 megawatts located in Sindh, diversifying its operations by embracing clean energy. Hubco said in a notification to the Pakistan Stock Exchange (PSX) on Tuesday “the board of directors of Hub Power has authorised the company to enter into negotiations and execute definitive agreements for the proposed acquisition of shares of Sindh Engro Coal Mining Company Limited (SECMC) held by a potential seller.”
The company, however, did not mention how much stake it was planning to take in the mining company. The completion of the proposed transaction is subject to necessary corporate and regulatory approvals and consent, and execution of definitive documents, the notification added.
SECMC is operating Pakistan’s first open-pit lignite mine in block-II of Tharparkar in Sindh. Including other blocks, Thar has one of the world’s largest coal reserves of 175 billion tons, which are equivalent to 50 billion tons of oil and 2,000 trillion cubic feet of gas.
“With the current annual mining capacity of 7.6 million tons, we continue to provide lignite quality coal to power producers in Pakistan,” SECMC said on its website. Arif Habib Limited analyst Muhammad Amad said in a commentary the sellers of SECMC’s stake may include Engro with 12% shareholding, Thal Limited another 12% stake, HBL 9% and China Machinery Engineering Corporation (CMEC) 4%.
“If Hubco acquires the stake from Engro, it is anticipated to positively impact its earnings by Rs0.73 per share (total impact of Rs947 million). A similar outcome is expected if the stake is acquired from Thal Limited,” he said.
“Alternatively, acquiring HBL’s stake would have a positive impact of Rs0.55 per share (or Rs710 million) on the profitability of Hubco. Additionally, Hubco can enhance its stake in SECMC by 4% through the purchase of all CMEC shares, resulting in a positive impact of Rs0.24 per share (Rs316 million).”
Another notification to the PSX said “Kapco has placed a bid to acquire an equity stake in Tenaga Generasi, which owns a 49.5MW wind power project located in Sindh.” The bid, if it is successful, will result in Kapco owning a majority stake in the company.
“Discussions are at the preliminary stage and any potential transaction would be subject to, among others, the execution of definitive documents, regulatory approvals and internal approvals including Kapco shareholders’ approval.”
Amad said the revenue of Tenaga Generasi rose 52% year-on-year in the first nine months of calendar year 2023, arriving at Rs4.7 billion. Additionally, the profit after tax for 9MCY23 showed a robust growth of 65%, amounting to Rs2.8 billion, as opposed to Rs1.7 billion in the corresponding period of last year.
The last 12-month profit after tax for Tenaga Generasi came in at Rs2.7 billion. “We see the company’s valuation settling at Rs9.4 billion ($33.4 million), on the basis of P/E (price-to-earnings ratio) valuation methodology.”
Principal activities of Kapco are the ownership, operation and maintenance of a 1,600MW nameplate capacity multi-fuel-fired power plant (gas, furnace oil and diesel) at Kot Addu, Punjab. The company sells electrical energy to a single customer, the Central Power Purchasing Agency (Guarantee) Limited (CPPA-G).
The company’s plant is Pakistan’s largest combined-cycle power plant.
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