Things to know for prospective investors about IPO of United Idi Mardi and RB Hydropower Limited; IPO issue opens from today

Company Profile

United Idi Mardi and RB Hydropower Limited (UIMHL) was initially incorporated as a private limited company on March 1, 2010, as United Idi-Mardi and R.B Hydropower Pvt. Ltd. Later on, it converted to a public limited company on April 17, 2018. It is promoted mainly by individual promoters from different background along with two institutional promoters for setting up of a 7MW run-of-river, Upper Mardi Khola Hydropower Project in the Kaski district of Nepal. This project is constructed under BOOT (Build, Own, Operate, and Transfer) mechanism.

Currently, the share capital of the company is held by 25 promoter shareholders, with Mr. Surya Bahadur K.C (23%), Mrs. Prem Kumari K.C (21.68%), Mr. Anuj Kayal (9.44%), Mr. Roshan K.C (8.78%), and Mr. Sunil Narayan Shrestha (8%) major promoter shareholders of the company. After the issue of the proposed IPO of Rs 105 Mn, the promoters and public holding ratio is expected to be in the ratio of 75:25.

About the issue

United IDI-Mardi and R.B. Hydropower Limited will be issuing 8,73,910 units (including 2,43,910 units unsubscribed by locals) worth Rs 8.73 crore as Initial Public Offering to the general public from (Mangsir 3-7, 2077). The early closing date of this issue is on Mangsir 7 and if the issue is not fully subscribed till Mangsir 7, then it can be extended up to Mangsir 17, 2077.

Out of the offered 8,73,910 units; 17,478 units have been set aside for the employees of the company and 43,696 units have been set aside for the mutual funds. The remaining 8,12,736 units are for the general public.

Global IME Capital Limited has been appointed as the issue manager for the IPO issue.

Credit Rating

Care ratings Nepal has assigned grading of ‘CARE-NP IPO Grade 4’ to the proposed Initial Public Offer (IPO) of United Idi Mardi and R.B. Hydropower Limited (UIMHL). ‘CARE-NP IPO Grade 4’ indicates Below Average Fundamentals.

Weaknesses

• Time and cost overrun leading to an increase in the cost of project and exposure to volatile interest rates
• Power evacuation risk
• Hydrology risk associated with run-of-the-river power generation
• Geological Risk

Strengths

• Board members and management team having prior experience in the hydropower sector
• The power purchase agreement with sufficient period coverage
• Low project implementation risk
• Financial closure achieved for initial project cost, however, funds yet to be tied for the cost overrun.
• Moderate counterparty risk
• Shortage of power in the country
• Government support for the power sector

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Capital Structure:

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Conclusion:

Hydropower is considered one of the most important sectors for the development of the economy because of its huge potential to generate electricity which can be sold to other countries benefitting the economy.

That being said, for the last few years, hydropower stocks in the stock market were not digested by the investors in the market for numerous reasons; some of them being the loss of craze for the investors in the hydropower stocks, the trend for the hydro stocks in the market was over which is why most of the stocks were trading below their par value of Rs. 100.

However, when we observe the current scenario, investors have been interested in this sector again, which is shown by the huge demand for the last few months. Almost all of the stocks have been trading above their par value signifying the high level of confidence in the sector.

When we look at the current trend of IPO in the market, we see that more than 9 lakhs investors have been applying in the recent issue’s which is a huge number when we compare it with past applicants. This shows that, even if a quarter of this number applied for the issue of United Idi Mardi and RB Hydropower Limited, the issue will be oversubscribed. So, it is advisable to apply only 10 units.