ICRA Nepal assigns Grade 5 rating to the upcoming 18.19 lakh unit IPO of Joshi Hydropower; Rating indicates poor fundamentals of the IPO issue
Fri, Mar 30, 2018 1:24 PM on Latest, IPO/FPO News, Featured, Credit Rating,
ICRA Nepal has assigned as [ICRANP] IPO Grade 5 indicating poor fundamentals to the proposed Initial Public Offering (IPO) of Joshi Hydropower Development Company Limited.
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.
JHDCL is proposing to come out with an Initial Public Offer of 1,819,860 numbers of equity shares of face value NPR 100 each at par. Of the total shares, 371,400 shares will be issued to project affected areas while remaining 1,448,460 shares will be issued to general public and staffs.
The assigned grading is constrained by weak return potential from the 3,000 KW Upper Puwa -1 hydroelectric project (HEP) developed by JHDCL given its poor operational performance so far (net plant load factor – PLF of ~42% for FY17 vs. contract energy PLF of ~65%) and low tariff rates applicable for generations up to initial capacity of the project i.e. 985 kW. The project is also exposed to counterparty credit risks arising out of exposure to loss-making Nepal Electricity Authority (NEA) for the energy supplied, although the same is partly mitigated by the fact that NEA is fully owned by the Government and has been making timely payments to JHDCL so far.
Since the revenues are entirely linked to unit sales from a single operational project, the project return and the financial health of the company is entirely dependent on hydrology of project stream. For FY16 (the first year of full operations) and FY17, JHDCL posted gross sales revenue of ~NPR 55 million each. The company reported net profit of ~NPR 2.4 million for FY17 (~NPR 0.3 million for FY16) over operating profit of ~NPR 43 million (~NPR 42 million for FY17).
Currently, JHDCL is closely held by a group of 12 individual promoters accounting for entire paid up capital of the company (NPR 189.40 million as of mid-Jan-18 including share application of NPR 56.50 million and net worth of ~NPR 180 million); capital to be increased to NPR 189.414 million prior to IPO). Major promoters of JHDCL include Mr. Birendra Bahadur Neupane (23.54% holding), Mr. Binod Thapa (14.25%), Mr. Binit Kumar Sharda (10.00%) and Mr. Sashi Karki (10.00%), among others.
