ICRA Nepal assigns Grade 4 rating to the upcoming (100%) 25.51 lakh unit right issue of Barun Hydropower; Paid up capital to reach Rs 51.03 crore after the right issue

ICRA Nepal has assigned Grade 4 rating to the 25.51 lakh units upcoming right of Barun Hydropower Company Limited. Instruments with this grading are considered to have below average fundamentals. BARUN is proposing to float 25.51lakh unit right shares of face value Rs 100 each. ICRA Nepal assigns IPO grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. For the grading categories 2, 3 and 4, the sign of + (plus) appended to the grading symbols indicate their relative better position within the grading categories concerned. The below average fundamental grading factors in weak operational performance of the operational 4.5 MW Hewa Khola Hydroelectric Project (HEP), which is the only operational hydropower project under Barun. Amid weak project performance and proposed capital infusion, incremental returns to equity holders are likely to remain diluted. The hydropower projects in Nepal are also exposed to counterparty credit risks arising out of exposure to loss-making NEA for the energy supplied; although the risk is partly mitigated due to sovereign support of Government of Nepal (GoN) to the NEA. Nonetheless, the grading factors in the reputation of the major promoters and their prior experience in hydropower sector. Although the 4.5 MW project is the first standalone venture of the major promoter group (Mr. Shailendra Guragain & associates), the promoters were a part of Arun Valley Group in the past. The 4.5 MW project was commissioned in August 2011 and has firm Power Purchase Agreement (PPA) with Nepal Electricity Authority (NEA) eliminating offtake and tariff risk. Barun owns and operates 4.5 MW Hewa Khola HEP, developed along Hewa River in Sankhuwasabha District of Eastern Nepal. The project was commissioned in August 2011 and was connected to national grid via 33 KV transmission line. Apart from moderate hydrological profile of the river, low evacuation capacity of the grid in the region also partly contributes to the energy loss and therefore the low PLF of Hewa HEP. During FY2017, the project operated for 11 months. During the period, the project operated at net PLF of 48%, meeting 76% of the PPA contract energy for the period. Barun, a hydropower development company, was established as private limited company in January 2004 and converted into public limited company in July 2009 to enable public participation. Barun owns and operates 4.5 MW Hewa Khola Hydroelectric project (HEP) in Sankhuwasabha district of eastern Nepal. The project is in operation since August 2011. The energy generated by the project is being sold to Nepal Electricity Authority (NEA) as per the terms of power purchase agreement (PPA).