Care Rating Nepal provides CARE-NP IPO Grade 4 indicating below average fundamentals to the proposed 19.25 lakh unit IPO of Panchthar Power Company

Care Rating Nepal Ltd has assigned grading of CARE-NP IPO Grade 4 to the proposed Initial Public Offer (IPO) of Panchthar Power Company Limited (PPC). ‘CARE-NP IPO Grade 4’ indicates Below Average Fundamentals.

CRNL assigns IPO grades on a scale of Grade 1 to Grade 5, with Grade 1 indicating ‘Strong fundamentals’ and Grade 5 indicating ‘Poor fundamentals’. CRNL’s IPO grading is an opinion on the fundamentals of the issuer. The grade assigned to any individual issue represents a relative assessment of the ‘fundamentals’ of the issuer.

PPC proposes to issue 19.25 lakh shares of face value of Rs.100 each at par aggregating Rs. 19.25 crore.

The grading assigned to Panchthar Power Company Limited (PPC) is constrained by short track record of operations and lower PLF, however improving over the period; leveraged capital structure and weak debt coverage indicators; hydrology risk associated with run of the river power projects and power evacuation risk.

The grading, however, derives strength from promoter support to the project in form of equity infusion during FY17 and 9MFY18 and experience of management; operational project achieved COD in February 2017 and cash profit during 9MFY18, although cash losses during FY17; Power purchase agreement (PPA) with sufficient period coverage and moderate counter party risk and prompt bills realisation from NEA; shortage of power in the country and government support for the power sector.

Sufficient hydrology, timely receipt of the payment from NEA and timely completion of Kabeli Corridor transmission line to evacuate full power generated from the project are the key grading sensitivities.