IPO of Bindhyabasini Hydropower gets Grade 4+ rating from CARE Ratings Nepal; Rating indicates below average fundamentals

CARE Ratings Nepal Ltd. (CRNL) has assigned grading of ‘CARE-NP IPO Grade 4+’ to the proposed Initial Public Offer of Bindhyabasini Hydropower Development Company Ltd. (BHDCL). ‘CARE-NP IPO Grade 4+’ indicates Below Average Fundamentals. CRNL assigns IPO grade on scale of Grade 1 to Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. CRNL use modifier {"+" (plus)} with the grading symbols 2, 3 and 4 and the same reflect comparative standing within the category.

The grading of 2+, 3+ and 4+ is better than 2, 3, and 4, respectively.  CRNL’s IPO grading is an opinion on the fundamentals of the issuer. The grade assigned to any individual issue represents a relative assessment of the ‘fundamentals’ of the issuer. BHDCL proposes to issue 2.5 Million shares of face value of Rs.100 each at par aggregating Rs. 250 Million.

Key Grading Weaknesses

• Short period of operation coupled with weak financial performance during FY19
• Moderate debt service coverage indicators
• Execution risk of under construction project, in which BHDCL has invested and plans to invest
• Exposure to volatile interest rate
• Hydrology risk associated with run-of-the-river power generation.

 Key Grading Strengths

• Experienced board members and management team, and financial support from directors
• Power purchase agreement with sufficient period coverage
• Financial closure achieved for total estimated debt and promoter share capital has fully injected
• Moderate project cost even after cost and time overrun
• Comfortable level of operational plant load factor (PLF) although low PLF during FY19 being initial stage of operation
• Moderate counter party risk
• Low project implementation risk however existence of project stabilization risk
• Shortage of power at present coupled with increasing demand of power in the country
• Government support for the power sector
• Low power evacuation risk

About the Company

BHDCL is Public Company, incorporated on Dec 18, 2000 as Bindhyabasini Hydropower Development Company Ltd. as a private company. Later on March 13, 2017 it was converted to public limited company. It has two run of the river hydropower project; 8.8 MW operational Rudi Khola-A Hydropower Project (Rudi A) and 6.6 MW under construction Rudi Khola-B Hydropower Project (Rudi B). The project is constructed under BOOT (Build, own, Operate and Transfer) mechanism. Generation License, from Government of Nepal – Ministry of Energy, was obtained on Dec 27, 2013 for Rudi A and on June 9, 2017 for Rudi B, which will be valid for 35 years from the license obtained date. The project shall be handed, on whatever conditions the project is, to the Government of Nepal after expiry of Generation License. It is promoted by individual promoters from different background. Mrs. Sita Acharya (17.30% stake), Mr. Sudeep Acharya (10.50% stake), Seed Infra Pvt. Ltd. (7.13% stake), Mr. Bharat Bahadur Pandey (6.24% stake), and Mr. Dil Sundar Shrestha (6.02% stake) are major promoter shareholders of the company.

Source: https://careratingsnepal.com/

Read the full report here.