ICRA Nepal assigns long-term rating of [ICRANP] LBB to the long-term loans, and short-term rating of [ICRANP] A4+ to the short-term loans of Makari Gad Hydropower

ICRA Nepal has assigned a long-term rating of [ICRANP] LBB (pronounced ICRA NP L double B) to the long-term loans, and a short-term rating of [ICRANP] A4+ (pronounced ICRA NP A four plus) to the short-term loans of Makari Gad Hydropower Private Limited (MGHPL).

Credit strengths

1. Experienced institutional promoters from power sector
2. Healthy dry energy mix and higher contract PLF to support return and debt coverage indicators
3. Minimal funding gap with injection of 82% promoter equity so far and fully tied-up debt component
4. Low tariff risk, given presence of long-term PPA at predetermined tariff rates and escalations
5. Low offtake risk on the back of PPA and demand-supply gap; however, conditional offtake clause for 10% of energy

Credit challenges

1. High project execution risk amid tight construction timeline; only ~15% of project work completed so far
2. Risk of tariff escalation loss and late COD penalty
3. Hydrology risks remain high, given lack of deemed generation clause in PPA 
4. Foreign exchange fluctuation risk

About the company   

Makari Gad Hydropower Private Limited (MGHPL), incorporated on February 4, 2014 as a private limited company by two institutional promoters viz. Hydro Vision Company Private Limited (Nepal) and Sky Power Renewable, LLC (LLC No. 11164/2013 in Cook Island). Later, the company majority share has been acquired by LTL Energy Private Limited, a Sri Lanka. LTL Energy is a 100% subsidiary of LTL Holdings Private Limited, Sri Lanka. LTL Energy received FDI approval on September 16, 2018 for a total sum of NPR ~803 million, which is 97.5% of the total issued share capital of ~NPR 824 million. 

MGHPL is developing the 10-MW Makari Gad Hydroelectric Project in the Darchula district of Sudurpashchim of Nepal. The estimated development cost of the project is NPR 2,050 million (~NPR 205 million per MW) in a debt equity ratio of 70:30. The debt is yet to be disbursed as the consortium is waiting for the rating. The debt portion is being financed by a consortium of three Class “A” banks led by Sanima Bank Limited that has been rated [ICRA NP IR] A-. The main promoter has already injected ~82% of the total equity requirement for the project while the rest will be injected soon. The project construction commenced in November 2018 and was ~15% complete as of mid-July 2019.

Source: ICRA Nepal