ICRA Nepal assigned LBBB-/A3 ratings to Trishuli Jal Vidhyut Company

ICRA Nepal has assigned a long-term rating of [ICRANP] LBBB-(pronounced ICRA NP L triple B minus) to Trishuli Jal Vidhyut Company Limited’s (TJVCL) long-term loan and a short-term rating of [ICRANP] A3 (pronounced ICRA NP A three) to its short-term loan.

The assigned ratings consider the presence of experienced institutional promoters,including the Nepal Electricity Authority (NEA),and an experienced key managerial team,which provides comfort in constructional,operational, and financial aspects of project development.The ratings also factor in the snow-fed sources for the gauged river, its high plant load factor (PLF),with 70% probability of exceedance (Q70), providing some comfort with the prospect of more generation from the project. These,coupled with a high tariff dry energy mix of ~46% under the new six months dry-wet energy mix,along with eight tariff escalations on the base tariff are further expected to record a healthy revenue profile and healthy return indicators and coverage indicators amid the fixed tariff and fixed tariff escalations regime. The presence of the predetermined tariff rates and the tariff escalations under the take-or-pay PPA for the entire project capacity also reduces the tariff risk and the offtake risk of the project. Also, the competitive interest rate signed for project financing remains positive for the company in reducing  the  financial  burden and aiding  the  coverage  indicators  to  some  extent.The  ratings  also factor  in  the lower evacuation risk with the NEA’s proposed evacuation structure in the later stage of development with nearly 21 months in hand before the RCOD of the project. Further, the ratings take comfort from the positive demand outlook for the energy sector,owing to the supply-demand gap in the power sector as well as the increasing energy consumption in the nation.

Credit strengths

• Institutional  promoters  and an experienced  team
• Healthy return indicators supported by high contract PLF, high dry energy mix and eight tariff escalations
• Low evacuation risks given NEA’s evacuation structures in later stages of construction
• Snow-fed sources and Q70 model to result in flow sustainability
• Low tariff risk,given long-term PPA at predetermined tariffs and escalations

Credit challenges

• Inherent  risk  of  project  execution amid  project  development
• Moderate funding risk with yet-to-be-collected equity proceeds
• Higher penalty clauses in case of inadequate supply of energy
• High hydrology risk given lack of deemed generation clause in PPA

About the company 

Trishuli  Jal  Vidhyut  Company  Limited  (TJVCL),incorporated  on  May  12,  2011  as  a  public  limited  company,  has a paid-up capital of ~NPR 1,519 million as of mid-April 2020, which includes 100% equity infusion from the promoter group (NPR 1,482 million)and the  rest collected from the ordinary shareholders’group in  March  2019  under  the Janata  ko  Jalbidhyut programme i.e.  Citizens  Hydropower  programme.  Equity  infused  so  far  is  ~62%  of  the  overall  equity  requirement  of  NPR 2,470 million. The shareholders of the company have been categorised under the promoter group and the ordinary group. The  promoter  group  would  hold  60%  shares  of  the company with 30% holding each  from the Nepal  Electricity  Authority (NEA) and Nepal Doorsanchar Company Limited.The ordinary shareholders group would hold 40% shares of the company (1.5% collected so far) and includes the general public (15%), the local affected population of Rasuwa and Nuwakot(10%), the employees  of the NEA  and the NDCL (5%),the local  entities  of  Rasuwa  and  Nuwakot (5%) and the companies  or cooperatives of Rasuwa and Nuwakot established with an objective of investing in hydropower companies(5%). The Upper Trishuli 3B Hydroelectric Project was selected by the Government of Nepal as the first project under the Janata ko Jalvidhyutprogramme. Accordingly, Trishuli Jal Vidhyut Company Limited has issued Initial Public Offerings(IPOs) of its shares to the general  public  in  March  2019  and  called for  an NPR  10  on the  face  value  of  NPR  100/share.  The Right  Honourable Prime Minister, Mr. K.P. Sharma Oli, was the first applicant of this IPO. The company plans to raise the remaining portion (38.5%) of the shares under the ordinary shareholder group through a series of IPOs once the project achieves 50% physical progress (45% physical progress so far).

The  company  is  developing  a  37-MW  Upper  Trishuli  3B  HEP  in  Nuwakot  and  Rasuwa  districts in  the Bagmati  Province  of Nepal. It is a cascade project of the upstream 60-MW Upper Trishuli 3A HEP promoted  by the NEA that would utilise the tail race discharge of the upstream project. I tis a run of the river (RoR) type project and is being developed at 70% probability of exceedance (Q70) at a total cost of ~NPR 8,227 million in a D:E ratio of 70:30. The loan financing for the project has been arranged through a consortium loan agreement with Nabil Bank Ltd as the lead for a total loan of NPR 5,760 million of which NPR 4,600 million has already been tied up.The agreement for the remaining NPR 1,160 million is at the final stages with the same consortium.

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