Himal Dolakha Hydropower Company receives Grade 4 for the proposed IPO issue worth Rs.78 Crore; ratings indicate below average fundamentals

Care Ratings Nepal Limited (CRNL) has assigned grading of ‘CARE-NP IPO Grade 4’ to the proposed Initial Public Offer (IPO) of Himal Dolakha Hydropower Company Limited (HDHCL). ‘CARE-NP IPO Grade 4’ indicates Below Average Fundamentals. The grade assigned to any individual issue represents a relative assessment of the ‘fundamentals’ of the issuer. HDHCL proposes to issue 78 Lakh shares of face value of Rs.100 each at par aggregating Rs.78 Crore.

The grading assigned to HDHCL is constrained by low operational plant load factor (PLF) of the projects and recent penalties levied by NEA leading to cash flow mismatches. The grading is also constrained by weak financial performance during Q1 FY19 (UA, refers to quarter ended mid-October 2018), however, earned net profit during FY17 and FY18 (refers to 12 months’ period ended mid-July 2018), weak debt service coverage indicators including high short term debt obligations. The grading also factored in execution risk associated with under construction project in which HDHCL has invested however, high return is expected from the project due to low cost of the project, hydrology risk associated with run-of-the river power generation, and moderate counter party risk.

The grading, however, derives strength from experienced board members and management team having experience in other hydropower project and financial support from directors. The grading also derive strength from power purchase agreement with sufficient period coverage, improvement in the PLF levels, supported by shortage of power in the country and government support for the power sector.

HDHCL has two run of the river hydropower project under operation, which are 4.55 MW Mai Khola Small Hydropower Project (Project I) and 8MW Mai Small Cascade Hydropower Project (Project II), both are located at Ilam district of Nepal. The projects are constructed under BOOT (Build, Own, Operate and Transfer) mechanism.

Project-I was completed with total cost of Rs.72.50 Crore (Rs.16.10 Crore per MW) which was funded through Debt: Equity of 75.13: 24.87. Project-II was completed with total cost of Rs.1.42 Arba (Rs.17.80 Crore per MW) which was funded through Debt: Equity of 62.82: 37.18.

HDHCL has Rs.45 Crore paid up share capital and Rs.37 Crore advance share capital as on July 16, 2018. Mr. Birendra Bahadur Neupane (41.93%), Mr. Rupemani Raj Bhandari (28.46%) and Ms. Bhagawati Chaudhari (12.67%) are major shareholders of the company. Promoters and public holding will be 51.25:49.75 after issue of proposed initial public share.