“NHPC will complete the audit and hold its AGM soon”
Sun, Mar 29, 2015 12:00 AM on Others,
ShareSansar, March 29:
National Hydropower Company Limited (NHPC) had the undivided attention of the investors for a couple of years after it was set up. But the interest in the company fizzled out gradually as it was hit by one crisis after another.
Of late, however, there have been some noticeable developments and market movements that could prove both ominous as well as promising for the future of NHPC.
While fluctuating share price, usually close to the par value, and recent bank notice to auction the shares of Sunkoshi Hydro Power Project must be deepening shareholders’ worries, the notification to investors about significant progress being made in the ongoing investigation and preparation of audit report, submission of which would open the door for long awaited AGM, should come as a relief for the investors.
In a bare-it-all interview with ShareSansar.com, Mr Kumar Pandey, chairman of the NHPC, shared how the company has been working to free itself from the dark shadows of the past, revive investors’ faith in the company and how the new management is striving to bring a turnaround that investors have long been waiting to see. (CLICK HERE FOR FULL INTERVIEW)
Where do you see National Hydro Power Company Limited five years from now?
NHPC has just emerged from a very difficult situation. Although we have managed to reach this stage, we still have the baggage of history that we carry.
Many people have taken undue advantage from NHPC and many have harmed it. Despite all of it, NHPC has shown that once a hydropower project is constructed and operational, it will survive no matter what, and NHPC is a living example of this.
At present NHPC generates revenue of about Rs 180 million per annum. NHPC (Indrawati -3) has loans of about Rs 100 million. Considering our revenue, if we wanted, we could repay the entire loan in 7-8 months. We have corrected a lot of the misdeeds and shortcomings of the former owners of the company, NB Group. I see NHPC becoming a well off company in a matter of few years. After paying the loans outstanding, the company will have surplus cash that will be reinvested in the hydropower sector. We will develop another project in the next few years. That can be the Lower Indrawati (4.5 MW) project--we will revive it--or some other project that we might just take over. We will gradually increase our equity base. We will also tie up with other projects as investors.
The main challenge for NHPC regarding payment of dividends is that its gross revenue is only Rs 180 million a year, and the paid up capital is Rs 1.36 billion. Even if we were to pay dividends payments, we won’t be able to provide dividend of more than 10%. There is really no surplus cash for making a sizeable dividend payment to the shareholders.
Now we should try to increase our equity base. If we fail to do that, we will neither be able to provide dividend nor will the stock price get better. So, for now, the board’s objective has to be to increase the asset structure or investment portfolio of the company.
How do you wish to make the company better?
No matter how much we try, there are going to be a lot of hassles in the coming days. The shadow of NB Group will haunt the company for some time. We don’t see it ending any time soon.
The last AGM--the one that elected the present Board--not only rejected the financial presented by NB Group but also gave us a mandate to investigate past irregularities, and redo the financial audit. For fear of what the investigation and the new audit would reveal, members of the past management created obstacles in the board as part of which there are countless court cases. But we have finally formed an investigation committee that is already at work and have appointed an auditor. In the next 1-2 months all things will be sorted out. We will make the findings of the investigation public. If the report finds no fault with the NB Group then we won’t go after them as having a grudge for no reason is futile. We need to move on.
To make company better, there are a few things we need to target. First, the revenue source has to be assured. We need to have a project that generates good profit and provides us with the revenue we need. That project will work as a lifeline for us and it has to be maintained properly. Second, we have to be disciplined and strengthen our management: reporting, auditing, internal organization should be bolstered. Third, we have to be forward looking. We should know where to invest and we should invest wisely. If we focus on these aspects, the company will definitely see a turnaround.
Who are the major promoters of the company right now?
We don’t have any major promoters. The Board had cancelled group representation before I arrived. Now, every shareholder is a public shareholder. Some 7 to 8 thousand shareholders hold 14 million kitta shares of NHPC. This is truly a public company.
Now, there are no promoters legally, technically or on the basis of stake. And there are no individual shareholders with major stake either.
As I know, NB Group still holds about 1.2 million kitta shares. But those shares too have been pledged in some banks against loans. These shares will be further diversified later after those shares are auctioned.
Is it true that the AGM is not being held because of the problem in the company’s balance sheet?
Yes. It has been stalled because of the problems related to audit and the investigation. But recently we made a breakthrough. The board’s audit committee has said that they will submit reports within 1-2 months, which will pave the way for calling the AGM.
Why did it take so long to carry out the investigation?
We did not have many important documents related to the company in our hand. NB Group and people loyal to them hid all the documents. We had to break into the office with the help of police after getting permission from the CDO to get hold of the documents. This was the main reason for the delay.
In the fake share certificate scam that came to light recently, most shares that were forged belonged to NHPC. Why did this happen and what are the risks?
As far as NHPC is concerned, this scandal has its roots in the past when the company issued right shares some 5-6 years ago.
Since all the issued right shares did not get subscribed, NHPC’s board at the time decided through a board resolution to allocate the reaming shares to different buyers. In one instance, 11 lakhs 80 thousand kitta shares was decided to sell to Nepal Bangladesh Bank. Notably, the owner of Nepal Bangladesh Bank and NHPC were the same at the time.
When we checked later, we found that not a single penny of that money came into the company. The sold shares were worth almost Rs 120 million but the money never showed up in the company’s account. So we went to Nepal Bangladesh Bank to enquire and found that it had no record of having acquired the shares.
What seems to have happened is that the NB Group printed NHPC shares and used Nepal Bangladesh Bank’s stamp and sold them to the public. We don’t know how many of those shares are in the market. The problem is it has been 5-6 years have already elapsed since, and the shares have been traded several times, we have no idea who owns them.
This particular case has created a big liability for the company as shares got issued but corresponding assets were never realized. Unfortunately, it seems there is nothing that can be done about it. We do not know the number of (NHPC’s fake) shares circulating in the market. Even if we were to go after them the public who bought them and hold them now will suffer. We cannot even recover them (fake shares) from the NB Group because they may have already sold those shares. It is a regulatory issue and the market regulator must help take care of it.
The current issue of duplication of shares is bad for the market. If it becomes endemic and rampant, it will have adverse effect on the market. This is the matter of credibility and trust.
The stock price of NHPC reached as high as Rs 600 and came to a low of Rs 45. What is the main reason behind it?
That will be difficult to answer. Part of it was gaming. For example, rumor was spread that National Hydro would be bought by Butwal Power Company. The share price shot up drastically after the fake news. Regulatory institutions must be able to stamp down such gaming activities. Here, two people can sit in a room and decide the fate of the market. One will say or do things that will boost the market and the other will do or say things that will take the market down. This is a reality and everyone knows about it.
This gaming has to be controlled. Other reasons for the decline in the price of shares are cost overruns, over capitalization, no possibility of providing significant dividends etc. Also, the company became orphaned after the NB Group went underground on bank fraud charges.
The share price hit the low of Rs 40-45 amid uncertainties fueled by the lack of a new Board at the company. After the new Board was instituted, we tried to maintain the fiscal discipline, resumed works related to the project, assured its revenue, checked out loan repayment schedules and developed certain mechanism to work with the banks. Over a period things gradually started to look better, which was reflected in the price of the shares.
I believe two things are required in order to maintain the share price of public limited companies: one, the company has to be internally strong, and two, it should be able to portray right message externally. If a company fails to maintain a balance in any of the two aspects, its stocks will crash.
If we become internally corrupt and fail to maintain the discipline--managerially or technically--irrespective of what kind of message is floated outside, the company will collapse. And since it is a public limited company, no matter how strong you are internally--you might have the best turbines, best operators, best accounting system--but if messages about the strength are not conveyed properly the stocks will again crash.
After we came, we worked very hard to improve things internally. Having hydropower experience made it easier for us to undertake these reforms. Where we failed was in conveying that message to the public. Messages of the existence of two boards, internal disputes, multiple court cases, were made public by those that did not want to see stock price increase. Those who didn’t know what was happening internally made their own assessment from what they heard and read. At a time when the other group was spreading rumors that the project was going down the drain, a bus load of shareholders went to the project site and saw that we were working, and everything was in order and improving.
It was after that, that the price of shares shot up to Rs 200. I believe the present decline in the price of NHPC shares to Rs 130 has very little to do with the company. This is in response to the various factors affecting the entire market, such as interest rates, liquidity, avenue for other type of investments, NRB’s fiscal policy etc. I think the company is now healthy as we have been doing all our internal homework. Now all we need to do is send out right messages.
How is the financial situation?
Our finances are fine. We have been able to generate our target revenues, rein in unnecessary costs, and maintain fiscal discipline.
Normally, for a hydropower company of this size, less than 10 percent of revenue should go toward operational expenses. Ours hovers at around 20 percent. Large number of employees had been hired previously and we are compelled to keep all of them. Actually, we may not even have to lay them off as we can send them to other projects that will come into operation soon.
We have a big office in Kathmandu because once you have many staff you need the space to accommodate them all. All these things add to our overheads. Such costs take up a bulk of our revenue. But apart from that we don’t have any other major costs, so financially we are fine.
There are other banks now. Why can't you change the banks you are working with (for NHPC)?
It is not something we hadn't thought about. But then we are tied to the present financiers in many ways. First of all, we cannot ignore the fact that our company was mired in many controversies because of our internal problems. So getting new financiers for such huge amount of loans in a troubled company would not have been easy.
Another thing is that apart from the Indrawati-3, which was already in operation, NB group took out loans to build Lower Indrawati. But the group discarded the project midway. They had already taken loans of about 200 million rupees. The Indrawati-3 Project was one of the guarantors for the lower project. In such scenario if we decided to shift the bank loans of the upper project, the present consortium would demand that the loans of the Lower Indrawati Project be also transferred. But the loan taken for the Lower Indrawati project had already become a bad loan, so it was not possible to change the consortium. Here, we must admit that lately we have received a lot of cooperation from the consortium to deal with loans of both the Indrawati-3 Project as we all as to move ahead with the Lower Indrawati Project’s loan settlement.
If the new management has been doing the right thing, why can't you call for right shares?
We only just sorted out many problems. Now we have the related documents in our hand, soon we will complete the audit and hold the AGM. We will have to wait and see what the AGM will do.
A general investor cannot find anything about National Hydropower Company, as you don't have a website. And then, even after the new management took charge, it never published the annual report. Don’t you think it could have brought some transparency and boosted investors' confidence in the company?
It took about two years to reestablish our identity. Things you said didn't fall in our priority as we were basically fighting for our survival: there were court cases, bad publicity, and host of other things that took up all our time and energy. Still, I have to admit that things you said does not take much time yet we could not fully extricate ourselves from the maze of things we had found ourselves in to devote time for these things.
But as a public limited company, no matter whether you are in profit or loss, shouldn't you have published quarterly reports?
After we came, we ensured that every transaction, irrespective of amount, must take place through bank. Which means everything can be accounted for. It's just that we never got around to publishing the report for reasons I have already mentioned before.
There was news that Sunkoshi Hydro Power Compnay (SHPC) would be sold off?
Although the bank had announced auctioning of the assets of this Company , we were told that there were no bidders. So the bank has asked us to make a proposal on how to move forward. Our board is working on the proposal. We might take it over under terms and conditions that will allow us to move forward.
Will Upper Tamakoshi be able to produce 456 MW by 2073 BS as it has promised? What are its consequences?
It’s possible by 2073 BS. There will be some hurdles so it could go up to 2074. But such a large scale project needs a market. In summer, when the production increases, what are we going to do? If the excess power generated by this 456 MW project could not be traded, then NEA will bear a yearly loss of billions of rupees.
If the company can sell the power to India, as allowed through the PTA, then NEA will be able to realize revenues worth billions of rupees. Therefore the implementation of the PTA and the completion of the transmission lines for power evacuation are critical for successful completion of the Upper Tamakoshi Project.
CLICK HERE FOR FULL INTERVIEW
At present NHPC generates revenue of about Rs 180 million per annum. NHPC (Indrawati -3) has loans of about Rs 100 million. Considering our revenue, if we wanted, we could repay the entire loan in 7-8 months. We have corrected a lot of the misdeeds and shortcomings of the former owners of the company, NB Group. I see NHPC becoming a well off company in a matter of few years. After paying the loans outstanding, the company will have surplus cash that will be reinvested in the hydropower sector. We will develop another project in the next few years. That can be the Lower Indrawati (4.5 MW) project--we will revive it--or some other project that we might just take over. We will gradually increase our equity base. We will also tie up with other projects as investors.
The main challenge for NHPC regarding payment of dividends is that its gross revenue is only Rs 180 million a year, and the paid up capital is Rs 1.36 billion. Even if we were to pay dividends payments, we won’t be able to provide dividend of more than 10%. There is really no surplus cash for making a sizeable dividend payment to the shareholders.
Now we should try to increase our equity base. If we fail to do that, we will neither be able to provide dividend nor will the stock price get better. So, for now, the board’s objective has to be to increase the asset structure or investment portfolio of the company.
How do you wish to make the company better?
No matter how much we try, there are going to be a lot of hassles in the coming days. The shadow of NB Group will haunt the company for some time. We don’t see it ending any time soon.
The last AGM--the one that elected the present Board--not only rejected the financial presented by NB Group but also gave us a mandate to investigate past irregularities, and redo the financial audit. For fear of what the investigation and the new audit would reveal, members of the past management created obstacles in the board as part of which there are countless court cases. But we have finally formed an investigation committee that is already at work and have appointed an auditor. In the next 1-2 months all things will be sorted out. We will make the findings of the investigation public. If the report finds no fault with the NB Group then we won’t go after them as having a grudge for no reason is futile. We need to move on.
To make company better, there are a few things we need to target. First, the revenue source has to be assured. We need to have a project that generates good profit and provides us with the revenue we need. That project will work as a lifeline for us and it has to be maintained properly. Second, we have to be disciplined and strengthen our management: reporting, auditing, internal organization should be bolstered. Third, we have to be forward looking. We should know where to invest and we should invest wisely. If we focus on these aspects, the company will definitely see a turnaround.
Who are the major promoters of the company right now?
We don’t have any major promoters. The Board had cancelled group representation before I arrived. Now, every shareholder is a public shareholder. Some 7 to 8 thousand shareholders hold 14 million kitta shares of NHPC. This is truly a public company.
Now, there are no promoters legally, technically or on the basis of stake. And there are no individual shareholders with major stake either.
As I know, NB Group still holds about 1.2 million kitta shares. But those shares too have been pledged in some banks against loans. These shares will be further diversified later after those shares are auctioned.
Is it true that the AGM is not being held because of the problem in the company’s balance sheet?
Yes. It has been stalled because of the problems related to audit and the investigation. But recently we made a breakthrough. The board’s audit committee has said that they will submit reports within 1-2 months, which will pave the way for calling the AGM.
Why did it take so long to carry out the investigation?
We did not have many important documents related to the company in our hand. NB Group and people loyal to them hid all the documents. We had to break into the office with the help of police after getting permission from the CDO to get hold of the documents. This was the main reason for the delay.
In the fake share certificate scam that came to light recently, most shares that were forged belonged to NHPC. Why did this happen and what are the risks?
As far as NHPC is concerned, this scandal has its roots in the past when the company issued right shares some 5-6 years ago.
Since all the issued right shares did not get subscribed, NHPC’s board at the time decided through a board resolution to allocate the reaming shares to different buyers. In one instance, 11 lakhs 80 thousand kitta shares was decided to sell to Nepal Bangladesh Bank. Notably, the owner of Nepal Bangladesh Bank and NHPC were the same at the time.
When we checked later, we found that not a single penny of that money came into the company. The sold shares were worth almost Rs 120 million but the money never showed up in the company’s account. So we went to Nepal Bangladesh Bank to enquire and found that it had no record of having acquired the shares.
What seems to have happened is that the NB Group printed NHPC shares and used Nepal Bangladesh Bank’s stamp and sold them to the public. We don’t know how many of those shares are in the market. The problem is it has been 5-6 years have already elapsed since, and the shares have been traded several times, we have no idea who owns them.
This particular case has created a big liability for the company as shares got issued but corresponding assets were never realized. Unfortunately, it seems there is nothing that can be done about it. We do not know the number of (NHPC’s fake) shares circulating in the market. Even if we were to go after them the public who bought them and hold them now will suffer. We cannot even recover them (fake shares) from the NB Group because they may have already sold those shares. It is a regulatory issue and the market regulator must help take care of it.
The current issue of duplication of shares is bad for the market. If it becomes endemic and rampant, it will have adverse effect on the market. This is the matter of credibility and trust.
The stock price of NHPC reached as high as Rs 600 and came to a low of Rs 45. What is the main reason behind it?
That will be difficult to answer. Part of it was gaming. For example, rumor was spread that National Hydro would be bought by Butwal Power Company. The share price shot up drastically after the fake news. Regulatory institutions must be able to stamp down such gaming activities. Here, two people can sit in a room and decide the fate of the market. One will say or do things that will boost the market and the other will do or say things that will take the market down. This is a reality and everyone knows about it.
This gaming has to be controlled. Other reasons for the decline in the price of shares are cost overruns, over capitalization, no possibility of providing significant dividends etc. Also, the company became orphaned after the NB Group went underground on bank fraud charges.
The share price hit the low of Rs 40-45 amid uncertainties fueled by the lack of a new Board at the company. After the new Board was instituted, we tried to maintain the fiscal discipline, resumed works related to the project, assured its revenue, checked out loan repayment schedules and developed certain mechanism to work with the banks. Over a period things gradually started to look better, which was reflected in the price of the shares.
I believe two things are required in order to maintain the share price of public limited companies: one, the company has to be internally strong, and two, it should be able to portray right message externally. If a company fails to maintain a balance in any of the two aspects, its stocks will crash.
If we become internally corrupt and fail to maintain the discipline--managerially or technically--irrespective of what kind of message is floated outside, the company will collapse. And since it is a public limited company, no matter how strong you are internally--you might have the best turbines, best operators, best accounting system--but if messages about the strength are not conveyed properly the stocks will again crash.
After we came, we worked very hard to improve things internally. Having hydropower experience made it easier for us to undertake these reforms. Where we failed was in conveying that message to the public. Messages of the existence of two boards, internal disputes, multiple court cases, were made public by those that did not want to see stock price increase. Those who didn’t know what was happening internally made their own assessment from what they heard and read. At a time when the other group was spreading rumors that the project was going down the drain, a bus load of shareholders went to the project site and saw that we were working, and everything was in order and improving.
It was after that, that the price of shares shot up to Rs 200. I believe the present decline in the price of NHPC shares to Rs 130 has very little to do with the company. This is in response to the various factors affecting the entire market, such as interest rates, liquidity, avenue for other type of investments, NRB’s fiscal policy etc. I think the company is now healthy as we have been doing all our internal homework. Now all we need to do is send out right messages.
How is the financial situation?
Our finances are fine. We have been able to generate our target revenues, rein in unnecessary costs, and maintain fiscal discipline.
Normally, for a hydropower company of this size, less than 10 percent of revenue should go toward operational expenses. Ours hovers at around 20 percent. Large number of employees had been hired previously and we are compelled to keep all of them. Actually, we may not even have to lay them off as we can send them to other projects that will come into operation soon.
We have a big office in Kathmandu because once you have many staff you need the space to accommodate them all. All these things add to our overheads. Such costs take up a bulk of our revenue. But apart from that we don’t have any other major costs, so financially we are fine.
There are other banks now. Why can't you change the banks you are working with (for NHPC)?
It is not something we hadn't thought about. But then we are tied to the present financiers in many ways. First of all, we cannot ignore the fact that our company was mired in many controversies because of our internal problems. So getting new financiers for such huge amount of loans in a troubled company would not have been easy.
Another thing is that apart from the Indrawati-3, which was already in operation, NB group took out loans to build Lower Indrawati. But the group discarded the project midway. They had already taken loans of about 200 million rupees. The Indrawati-3 Project was one of the guarantors for the lower project. In such scenario if we decided to shift the bank loans of the upper project, the present consortium would demand that the loans of the Lower Indrawati Project be also transferred. But the loan taken for the Lower Indrawati project had already become a bad loan, so it was not possible to change the consortium. Here, we must admit that lately we have received a lot of cooperation from the consortium to deal with loans of both the Indrawati-3 Project as we all as to move ahead with the Lower Indrawati Project’s loan settlement.
If the new management has been doing the right thing, why can't you call for right shares?
We only just sorted out many problems. Now we have the related documents in our hand, soon we will complete the audit and hold the AGM. We will have to wait and see what the AGM will do.
A general investor cannot find anything about National Hydropower Company, as you don't have a website. And then, even after the new management took charge, it never published the annual report. Don’t you think it could have brought some transparency and boosted investors' confidence in the company?
It took about two years to reestablish our identity. Things you said didn't fall in our priority as we were basically fighting for our survival: there were court cases, bad publicity, and host of other things that took up all our time and energy. Still, I have to admit that things you said does not take much time yet we could not fully extricate ourselves from the maze of things we had found ourselves in to devote time for these things.
But as a public limited company, no matter whether you are in profit or loss, shouldn't you have published quarterly reports?
After we came, we ensured that every transaction, irrespective of amount, must take place through bank. Which means everything can be accounted for. It's just that we never got around to publishing the report for reasons I have already mentioned before.
There was news that Sunkoshi Hydro Power Compnay (SHPC) would be sold off?
Although the bank had announced auctioning of the assets of this Company , we were told that there were no bidders. So the bank has asked us to make a proposal on how to move forward. Our board is working on the proposal. We might take it over under terms and conditions that will allow us to move forward.
Will Upper Tamakoshi be able to produce 456 MW by 2073 BS as it has promised? What are its consequences?
It’s possible by 2073 BS. There will be some hurdles so it could go up to 2074. But such a large scale project needs a market. In summer, when the production increases, what are we going to do? If the excess power generated by this 456 MW project could not be traded, then NEA will bear a yearly loss of billions of rupees.
If the company can sell the power to India, as allowed through the PTA, then NEA will be able to realize revenues worth billions of rupees. Therefore the implementation of the PTA and the completion of the transmission lines for power evacuation are critical for successful completion of the Upper Tamakoshi Project.
CLICK HERE FOR FULL INTERVIEW
