ICRA Nepal assigned LBBB-/A3 ratings to Trishuli Jal Vidhyut Company
Tue, Jun 23, 2020 3:56 PM on Credit Rating, Latest,
ICRA Nepal has assigned a long-term rating of [ICRANP] LBBB-(pronounced ICRA NP L triple B minus) to Trishuli Jal Vidhyut Company Limited’s (TJVCL) long-term loan and a short-term rating of [ICRANP] A3 (pronounced ICRA NP A three) to its short-term loan.
The assigned ratings consider the presence of experienced institutional promoters,including the Nepal Electricity Authority (NEA),and an experienced key managerial team,which provides comfort in constructional,operational, and financial aspects of project development.The ratings also factor in the snow-fed sources for the gauged river, its high plant load factor (PLF),with 70% probability of exceedance (Q70), providing some comfort with the prospect of more generation from the project. These,coupled with a high tariff dry energy mix of ~46% under the new six months dry-wet energy mix,along with eight tariff escalations on the base tariff are further expected to record a healthy revenue profile and healthy return indicators and coverage indicators amid the fixed tariff and fixed tariff escalations regime. The presence of the predetermined tariff rates and the tariff escalations under the take-or-pay PPA for the entire project capacity also reduces the tariff risk and the offtake risk of the project. Also, the competitive interest rate signed for project financing remains positive for the company in reducing the financial burden and aiding the coverage indicators to some extent.The ratings also factor in the lower evacuation risk with the NEA’s proposed evacuation structure in the later stage of development with nearly 21 months in hand before the RCOD of the project. Further, the ratings take comfort from the positive demand outlook for the energy sector,owing to the supply-demand gap in the power sector as well as the increasing energy consumption in the nation.
Credit strengths
- Institutional promoters and an experienced team
- Healthy return indicators supported by high contract PLF, high dry energy mix and eight tariff escalations
- Low evacuation risks given NEA’s evacuation structures in later stages of construction
- Snow-fed sources and Q70 model to result in flow sustainability
- Low tariff risk,given long-term PPA at predetermined tariffs and escalations
Credit challenges
- Inherent risk of project execution amid project development
- Moderate funding risk with yet-to-be-collected equity proceeds
- Higher penalty clauses in case of inadequate supply of energy
- High hydrology risk given lack of deemed generation clause in PPA
About the company
Trishuli Jal Vidhyut Company Limited (TJVCL),incorporated on May 12, 2011 as a public limited company, has a paid-up capital of ~NPR 1,519 million as of mid-April 2020, which includes 100% equity infusion from the promoter group (NPR 1,482 million)and the rest collected from the ordinary shareholders’group in March 2019 under the Janata ko Jalbidhyut programme i.e. Citizens Hydropower programme. Equity infused so far is ~62% of the overall equity requirement of NPR 2,470 million. The shareholders of the company have been categorised under the promoter group and the ordinary group. The promoter group would hold 60% shares of the company with 30% holding each from the Nepal Electricity Authority (NEA) and Nepal Doorsanchar Company Limited.The ordinary shareholders group would hold 40% shares of the company (1.5% collected so far) and includes the general public (15%), the local affected population of Rasuwa and Nuwakot(10%), the employees of the NEA and the NDCL (5%),the local entities of Rasuwa and Nuwakot (5%) and the companies or cooperatives of Rasuwa and Nuwakot established with an objective of investing in hydropower companies(5%). The Upper Trishuli 3B Hydroelectric Project was selected by the Government of Nepal as the first project under the Janata ko Jalvidhyutprogramme. Accordingly, Trishuli Jal Vidhyut Company Limited has issued Initial Public Offerings(IPOs) of its shares to the general public in March 2019 and called for an NPR 10 on the face value of NPR 100/share. The Right Honourable Prime Minister, Mr. K.P. Sharma Oli, was the first applicant of this IPO. The company plans to raise the remaining portion (38.5%) of the shares under the ordinary shareholder group through a series of IPOs once the project achieves 50% physical progress (45% physical progress so far).
The company is developing a 37-MW Upper Trishuli 3B HEP in Nuwakot and Rasuwa districts in the Bagmati Province of Nepal. It is a cascade project of the upstream 60-MW Upper Trishuli 3A HEP promoted by the NEA that would utilise the tail race discharge of the upstream project. I tis a run of the river (RoR) type project and is being developed at 70% probability of exceedance (Q70) at a total cost of ~NPR 8,227 million in a D:E ratio of 70:30. The loan financing for the project has been arranged through a consortium loan agreement with Nabil Bank Ltd as the lead for a total loan of NPR 5,760 million of which NPR 4,600 million has already been tied up.The agreement for the remaining NPR 1,160 million is at the final stages with the same consortium.
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