Sagarmatha Jalabidhyut looking to raise long term debt worth Rs.1340 Million; ICRA rates the issue

ICRA Nepal has assigned the long-term rating of [ICRANP] LBB- (pronounced ICRA NP L double B minus) to the NPR 1,340-million long-term loans of Sagarmatha Jalabidhyut Company Private Limited (SJCPL).

The assigned ratings factor in the early stage of project development and consequently higher execution risk associated with the proposed 9.6-MW Super Mai-A hydroelectric project (HEP) being developed by SJCPL in the Illam district of Eastern Nepal. The rating also factors in the relatively high project capital cost on a fixed tariff regime and high gearing level (given the 75:25 debt equity ratio) which results in moderate return and debt coverage indicators for the company. The rating also remains constrained by the hydrological risk due to the absence of the deemed generation clause in the power purchase agreement. The interest rate volatility in the banking sector also remains a rating concern, given the high debt burden of the company.

Nonetheless, the assigned rating draws comfort from the experience of the promoters in hydro power development and operation. The rating also factors in low regulatory and off-take risks, given the firm off-take arrangement through a long-term power purchase agreement (PPA) with the Nepal Electricity Authority (NEA) and a positive demand outlook for renewable energy in Nepal. The assigned rating also factors in the presence of operational NEA substation at the proposed connection point and resulting low evacuation risk for the project.

Sagarmatha Jalbidyut Company Private Limited (SJCPL) was incorporated in November 2015 as a private limited company. As of mid-March 2019, the company has seven promoters with major holding from the Chairman Mr. Rajendra Prasad Gautam (~46%), other major shareholders being Mr. Mohan Bikram Karki (16%), Mr. Madhav Prasad Mainali (15%) & Mr. Rajendra BC (14%). The company is developing a 9.6-MW Super Mai-A HPP (Required Commercial Operation Date-RCOD: January13, 2021) in Illam District of Eastern Nepal. Till mid-March 2019, the project had achieved ~15% financial progress.