54.75 lakh units IPO of Sanjen Jalavidhyut Company floats from tomorrow; Things to know before applying

Company profile

Sanjen Jalavidhyut Company Limited (SJCL), a subsidiary of Chilime Hydropower Company Limited was incorporated in 2010 as a public limited company. The registered address of Sanjen HEP is Maharajgunj, Kathmandu whereas the projects are located in Rasuwa District.

Sanjen Jalavidhyut Company Limited is a subsidiary of Chilime Hydro Power Limited has been constructing 57.3 megawatt capacity of lower and upper Sanjen with an estimate cost above Rs 8.65 arba including interest during construction (IDC).

The estimated per megawatt cost of this project is Rs 15 crore and normal payback period of this project is 6.7 years.

Earlier, the company had issued 24% share of the issued capital for the members of Employees Provident Fund from Falgun 11, 2074 to Falgun 30, 2074 and for the employees of the promoter institutions as well as employees of the local offices, it was open from Chaitra 5, 2074 to Chaitra 13, 2074. The company will issue 10% share i.e. 36,50,000 units in the future to the residents of project affected people.

Objective of the issue

The fund raised from the IPO will be utilized for infrastructure construction and development and other expenses pertinent to the two projects.

About the issue

It is issuing 54,75,000 units’ ordinary shares worth Rs 54.75 crore to the general public under the “Janata ko Jalavidhyut” scheme of government. The early closing date of this IPO issue is Baisakh 10, 2076 and if the issue is not subscribed till Baisakh 10 then this issue can be extended upto Jestha 5, 2076.

Out of the offered 54,75,000 units, 4% i.e. 2,19,000 units have been set aside for the employees of the company and 5% i.e. 2,73,750 units have been allotted for the mutual funds. The remaining 49,82,250 units are for the general public.

The issue capital of the company is Rs 3.65 arba and 15% share of issue capital is being offered to general public. ICRA Nepal Limited has assigned a [ICRANP] IPO Grade 4+ (Pronounced as ICRA NP IPO Grade Four Plus) to the Rs.54.75 crore IPO of Sanjen Jalavidhyut Company Limited.

Citizens Investment Trust has been appointed as the issue manager for the IPO issuance whereas as Sunrise Capital Limited and NMB Capital Limited has been appointed as the co-issue manager.

Project progress status

Capital structure

Shareholding structure

*The 4% for employees being issued now refers to the employees of Sanjen Hydropower Company. Whereas, the IPO for employees of credit lending companies, employees of institutional promoters (Chilime Hydropower Company, Nepal Electricity Authority and the Local level of Rasuwa District) and the account holders of Employees Provident Fund have already been issued and subscribed.

Institutional promoters

Board of directors

All of the board of directors are representative of promoter institutions, therefore they have no individual shareholding.

Management team

Credit rating

ICRA Nepal has assigned an “[ICRANP] IPO Grade 4+”, indicating below-average fundamentals to the proposed Initial Public Offering (IPO) of Sanjen Jalavidhyut Company Limited (SJCL).  SJCL is proposing to come out with an IPO of 5,475,000 equity shares with a face value NPR 100 each, at par.

Strength and opportunities

• The grading factors in the strength of promoter companies (NEA and Chilime Hydropower Company Limited which are both direct/indirect Government undertakings) and their significant experience in development and operations of hydropower projects.
• Firm PPA in place and positive demand outlook in the power sector, the tariff and off-take risks are also minimal.
• Funding risks for the projects are also minimal as debt requirements of the projects have been tied up with the Employees Provident Fund (EPF, one of the largest state-owned retirement fund operators) and the promoters have infused their share of equity; with the remaining equity being raised through a series of IPOs.
• The current physical progress (~65-70%) also minimizes the project implementation risks to an extent.

Weaknesses and threats:

• The time and cost overrun seen in the two hydro-electric projects (HEPs) aggregating 57.3 MW being developed by SJCL.
• The projects are expected to be delayed compared to their commissioning schedule and have already seen ~11% cost increment over the initial estimates.
• The project is exposed to foreign exchange fluctuation risks on account of the unhedged USD denominated contractual liabilities (~27% of project cost).
• The grading also considers the evacuation risks for the projects as the Chilime hub for power evacuation is behind its earlier commissioning schedule.
• The hydrology risk for the projects is also high, given the lack of deemed generation clause in power purchase agreement (PPA).
• The grading is also constrained by the interest rate volatility in the market and the counterparty credit risks arising out of its exposure to the loss-making Nepal Electricity Authority (NEA) for the energy supplied. However, this is partly offset by the sovereign support to the NEA, being fully owned by the Government of Nepal and its past track record of timely payment to private HEP developers.

Source: ICRA Nepal (https://icranepal.com/releases.php)

Financial performance

Debt structure

*The loan is taken as a tripartite agreement between Sanjen Jalabidhyut Company, Chilime Hydropower company and Employee Provident Fund.

Conclusion

Sanjen Hydropower Project is one of the 21 projects that the government is promoting under its “Janatako Jalavidhyut" initiative. The IPO for Sanjen and Rasuwagadhi IPO opens and closes at the same date.

Similar to Rasuwagadhi HEP, the company is also issuing IPO to the general public before the project locals, which is not the general trend. Prior to this issue, the company had issued IPO for the EPF's account holding employees, loan providing company's employees and institutional promoter companies' employees. In all of those issues, the response was quite encouraging, where the issues were being oversubscribed.

Given the detailed fundamentals above, now the decision is in your hand whether or not to invest.

Source: Company prospectus and ICRA Nepal