ICRA Nepal assigns IPO Grade 4 to the upcoming 18 lakh units IPO of Kalika Hydropower

ICRA Nepal has assigned “[ICRANP] IPO Grade 4, indicating below average fundamentals to the proposed Initial Public Offering (IPO) of Kalika Power Company Limited (KPCL). KPCL has proposed an initial public offer of 1,800,000 numbers of equity shares of face value NPR 100 at par. Of the total shares, 600,000 shares will be issued to residents of project affected areas while remaining 1,200,000 shares will be issued to public and staff. As per ICRA Nepal, the assigned grading considers high project commissioning cost (NPR 231 million per MW) of the operational 6 MW Daraudi Kalika Hydroelectric Project (HEP), on a relatively fixed energy tariff regime; which dilutes the return potential from the project even though plant is able to largely meet its design parameters for performance. The grading is also constrained by high equity component in the project cost (51:49 debt equity ratio), which although reduces the financial risk on the company, but also minimizes the benefit of leveraging on the return to equity shareholders. The grading is further constrained by equal principal instalment based repayment which will put pressure on the loan repayment capacity of KPCL in early years, minimizing returns to the equity shareholders in those periods. ICRA Nepal assigns IPO grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. For the grading categories 2, 3 and 4, the sign of + (plus) added to the grading symbols indicate their relative better position within the grading categories concerned. Kathmandu Capital Market Limited and Global IME Capital Limited has been appointed as the issue manager for this IPO. KPCL owns and operates 6 MW Daraudi Kalika HEP, developed along Daraudi river in Gorkha District of western Nepal. The project was commissioned in 28th November 2016 and was connected to national grid via 33 KV transmission line.