Care Ratings Nepal assigns below average fundamental to the proposed IPO issue of Singati Hydro Energy Limited

CRNL has assigned grading of ‘CARE-NP IPO Grade 4’ to the proposed Initial Public Offer (IPO) of Singati Hydro Energy Limited (SHEL). ‘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. SHEL proposes to issue 4.35 Mn shares of face value of Rs.100 each at par aggregating Rs. 435 Mn.

The grading assigned to SHEL is constrained by significant time and cost overrun leading to high cost of project and exposure to volatile interest rates, foreign exchange fluctuation risk and power evacuation risk. The grading also factors in hydrology risk associated with run of the river power projects and geological risk. The grading, however, derives strength from experienced board members and management team in hydropower sector, power purchase agreement (PPA) with sufficient period coverage, low project implementation risk and financial closure achieved for the project cost. Further, grading is supported by moderate counter party risk, shortage of power in the country and government support for the power sector.

SHEL was initially incorporated as a private limited company named Singati Hydro Energy Private Limited on May 19, 2010. Later on, it converted to a public limited company named Singati Hydro Energy Limited on June 20, 2018. It is promoted by various institutional and individual promoters from different background for setting up of a 25 MW run-of-river, Singati Khola Hydropower Project (SKHP) in Dolakha district of Nepal. The project is one of the ‘super six’ hydro power projects of Nepal. This project is constructed under BOOT (Build, own, Operate and Transfer) mechanism. Mr. Batu Lamichhane (15.58%), Mr.Ganesh Karki (9.01%), RC Hydro Investment Pvt. Ltd. (7.54%), Bask Hydel Investment Company Pvt. Ltd. (6.44%) and Baidik Hydro Investment Company Pvt. Ltd (6.30%) are the major promoter shareholders of the company. Promoters and public holding is expected to be in the ratio of 70:30 after issue of proposed IPO.

Initial RCOD of the project for 16 MW capacity was September 17, 2017 and for additional 9 MW capacity is July 16, 2020. The project was not completed within expected RCOD due to capacity enhancement. Therefore, RCOD for 16 MW capacity was extended to June 30, 2019 while RCOD for additional 9 MW capacity remained same. Commercial operation of the project is expected from Mid-July 2019.

(Source: Care Ratings Nepal)