HYM Consult Private Limited looking to raise loans worth Rs.90 Crore for Rele Khola Hydropower Project; ICRA Nepal grades the issue

ICRA Nepal has assigned the long-term rating of [ICRANP] LB+ to the proposed long-term loans of HYM Consult Private Limited (HCPL) worth Rs.90 Crore. ICRA Nepal has also assigned the short-term rating of [ICRANP] A4 to the proposed short-term loans of the company.

Incorporated in February 2007, HYM Consult Private Limited (HCPL) is the developer of the 6-MW Rele Khola hydropower project in Narchyang VDC, Myagdi District of Gandaki Pradesh, Nepal. The main promoters of the company include Mr. Tara Prasad Bhattarai (~48% stake currently), Ms. Shovana Pokharel (~16% stake) and Mr. Sujan Kumar Kafle (~14% stake), among others. The proposed project has RCOD of June 1, 2020, as per the PPA signed with the NEA.

The assigned ratings are constrained by the significant execution risks of the 6-MW Rele Khola Hydroelectric Project (HEP) being developed by HCPL. While the project is required to operate from June 1, 2020, only road excavation has been started so far, raising timeline concerns. The promoters’ limited experience in hydropower project development and operation is also an area of concern. The execution risks, however, are mitigated to an extent by the experience of the contractor (Schimmer Infra Pvt. Ltd., India) involved in the project development. The rating action further considers the high evacuation risks for the project as the Kali Gandaki transmission corridor of the Nepal Electricity Authority (NEA) is targeted to be completed only by December 2020. Any delays in corridor completion could defer the project commissioning and hence increase the project costs. This in turn may lead to weakening of coverage and return indicators, given the fixed tariffs. The hydrological risks are also high for the project, given the lack of deemed generation clause in the power purchase agreement (PPA). These risks are further heightened by the presence of stringent terms in the PPA, requiring a minimum of 30% dry energy. Failure to deliver this might impact the wet season (June to November) revenues as well. The rating action is also impacted by the funding risks as the financial closure is yet to be achieved.

Nonetheless, the rating action considers the low regulatory and tariff risks, given the presence of long-term PPA. Additionally, the relatively high share of dry energy (~32%) augurs well for the revenue prospects of the company. Also, the project cost remains largely comparable to similar projects. Moreover, the supply-demand gap in Nepal’s power sector is expected to result in healthy offtake. However, the 10% conditional offtake clauses during the peak rainy months from FY2019 to FY2029 raises some concern. Going forward, the company’s ability to commission the project within the budgeted cost and stipulated time and achieve the design operating parameters would remain the key rating sensitivities.