ICRA Nepal assigns IPO Grade 5 to the upcoming 14 lakh units IPO of Union Hydropower

ICRA Nepal has assigned an “[ICRANP] IPO Grade 5” rating to the upcoming Initial Public Offering (IPO) of Union Hydropower Limited (UHL), indicating poor fundamentals. Union Hydropower is seeking to issue 14,00,000 units IPO shares worth Rs 14 crore to the general public at a par value of Rs 100 per unit. Out of the total 14 lakh units shares, 4 lakh units shares will be issued to the people of project-affected area (Lamjung district) and 10 lakh units shares will be issued to the general public and staff of the hydropower company. As per ICRA Nepal, the assigned grading takes into account weak project profile of the 3 MW project being developed by UHL led by high project costs (~Rs 27.10 crore per MW) coupled with low tariff rates (as per NEA norms) which severely hamper the project’s return potential. The grading is also constrained by interest rate volatility in the market and the counter-party credit risks arising out of exposure to loss-making 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 payments to IPPs (Independent Power Producers) in a timely manner in the past. 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) added to the grading symbols indicate their relative better position within the grading categories concerned. Laxmi Capital Market Limited has been appointed as the issue manager for this IPO. Union Hydropower Limited is developing Midim Khola (Karapu) Hydropower Project (3 MW), a run-of- river type hydropower project located in the Lamjung District, Western Development Region of Nepal. More than 50% of the total work at the project site has been completed and its financial closure was done on August 21, 2014.