Care Ratings assigns Grade 4+ to the proposed IPO of Mountain Energy Nepal; the company set to issue IPO worth Rs.39.36 Crore

Care Ratings Nepal (CRNL) has assigned ‘CARE-NP IPO Grade 4+ [IPO Grade Four Plus]’ grading to the proposed Initial Public Offering (IPO) of Mountain Energy Nepal Limited (MENL). ‘CARE-NP IPO Grade 4+’ indicates Below Average Fundamentals. MENL is proposed to come out with IPO of 3.936054 Million equity shares having face value of Rs.100 each at par aggregating Rs.393.6054 Million.

Mountain Energy Nepal Limited (MENL) is a public limited company promoted by business persons having long experience in the hydropower and other sectors for setting up Hydroelectric Project in the territory of Nepal. MENL had two subsidiaries companies namely ASBL (53.71% holding of MENL as on July 16, 2018) and REL (74.40% holding of MENL as on July 16, 2018).

ASBL was involved in the operation of 5MW run-of-the-river TKHEP at Tadi Rural Municipality, Nuwakot District. REL was involved in the construction of 42MW MKHEP. MENL acquired ASBL and REL via special resolution adopted at the Annual General Meeting of all three companies held on January 05, 2017. Promoter group will hold 80% and public will hold 20% of total shareholding of the company after issuance of the proposed IPO.

The grading assigned to MENL is constrained by project implementation risk and stabilization risk associated with the project, operational project operated at low plant load factor (PLF), hydrology risk associated with run-of-the-river power generation and exposure to volatile interest rates.

The grading, however, derives strength from experienced promoters and management team, track record in operating hydro power projects, power purchase agreement with sufficient period coverage and moderate counter party risk.

The grading also factors in financial closure achieved for the project under construction, relatively low cost per megawatt (MW) of the under-construction project, shortage of power in the country ensuring offtake, government support for the power sector and major developments towards power evacuation.