ICRA Nepal has assigned a long-term rating of [ICRANP] LB+ (pronounced ICRA NP L B plus) to Rapti Hydro & General Construction Limited’s (RHGCL) long-term loan and a short-term rating of [ICRANP] A4 (pronounced ICRA NP A four) to its short-term loans.
The assigned ratings are constrained by the relatively higher project cost (NPR 220 million per MW) and the inherent project execution risks(~60% complete as of mid-February 2020)associated with the 5-MW Rukum Gad HPP amid the delayed project execution scenario. This led to the failure to meet its required commercial operation date (RCOD)1. This exposes the company to various risks such as a late COD penalty, loss of tariff escalations and reduction in the project period in case of further delay. The ratings also factor in the high evacuation risk for the project with no evacuation structures in place so far.Any delays in project execution that can emanate from geological surprises, floods and landslides in the ~2,400-m long pipeline alignment could result in the failure to meet the revised RCOD and escalate the project cost,thus impacting RHGCL’s financial and debt coverage indicators amid the fixed tariff and fixed escalation regime.The ratings are also constrained by the bank funding risk that requires 70% funding of the escalated cost of NPR 140 million (budgeted cost revised to NPR 1,100 million from NPR 960 million),which is yet to be tied up. The non-materialisation of this would require additional equity infusion by the promoters to cover the same.Similarly, a rating concern emanates from hydrological risks, given the absence of a deemed generation clause in the power purchase agreement (PPA) for which no compensation is payable to the company by the Nepal Electricity Authority (NEA) in case of an adverse flow in the river. The ratings are also constrained by the counter party credit exposure of the NEA, which has a moderate financial profile(with recent improvements). This is partly mitigated by the sovereign support of the Government of Nepal (GoN) to the NEA and its past track record of timely payments to independent power producers (IPPs).
- Institutional promoters and prior experience of board and management team in hydropower sector
- Low tariff risk,given long-term PPA at predetermined tariffs and escalations
- Inherent risk of project execution
- Funding risk,given the revised projected cost
- High evacuation risk,given non-completion of NEA’s evacuation structures and transmission lines connecting them
- Stretched coverage ratios and financial indicators amid delayed project commissioning and relatively higher estimated project cost
- Low offtake risk;however, provision of 10% reserve margin clause in PPA
- High hydrology risk,given lack of deemed generation clause in PPA
About the company
Rapti Hydro & General Construction Limited (RHGCL), incorporated on October21, 2008as a public limited company, is developing the 5-MW Rukum Gad HPP in the Rukum district, Province 5 of Nepal at a budgeted cost of NPR 1,100 million at a D:E ratio of 70:30. So far, the equity requirement has been injected. However,the required debt component is yet to be tied up for the increased project cost.The company’s paid-up capital,including advances,as of mid-January 2020 was ~NPR 319 million,which is 100% promoter held. The major promoters of the company include M/s CEBD Hydropower Development Company Limited with ~96.5% equity through its subsidiary and associates viz. M/s Universal Power Company Limited(~45%)and M/s Radhi Bidyut Company Limited(~40%).The project is a low head and high discharge run-of-the-river (R-o-R) type and is being developed at a 40% probability of exceedance (Q40). The plant load factor (PLF) of the project is 65% with an annual production capacity of~28.5 GWh of energy. The dry energy mix of the project on the overall energy is ~18%.
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