ICRA Nepal assigns IPO Grade 4 to the upcoming IPO of Mailung Khola Jal Vidyut Company

ICRA Nepal has assigned an “[ICRANP] IPO Grade 4” rating to the upcoming IPO of Mailung Khola Jal Vidyut Company Limited, indicating below average fundamentals. Mailung Khola Jal Vidyut Company is seeking to issue 11,04,429 units IPO shares to the general public at a par value of Rs 100 per unit. Out of the total 11.04 lakh units shares, 3.68 lakh units shares will be issued to the people of project-affected area (Rasuwa district) and 7.36 lakh units shares will be issued to the general public and staff of the hydropower company. As per ICRA Nepal, the grading it received is greatly influenced by moderate operational performance of the operational 5MW Mailung Khola Hydropower Project, resulting in a weak earnings profile. The grading is also hampered by significant delay in the commercial operation date of the hydel project and the subsequent high penalty charged— up to an extent of even 30% of the monthly revenue. The project had suffered damages during the April 2015 earthquake and resumed operation only from August 2016, but the risks arising due to similar events and landslides in the future cannot be ruled out since the intake, power house and penstock are all situated in the landslide-prone area. However, the hydropower company has a firm PPA in place. Under the government’s initiative of promoting private sector hydropower developers, the project is also entitled to an increase tariff rates of Rs 4.80 and Rs 8.40 per unit in wet and dry seasons respectively; which will remain effective for up to 7 years after its proposed commercial operation date of February 2013. Going forward, the ability of the project to minimize the gap between actual generation and contractual energy will be the most important driver for the project returns. 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) appended to the grading symbols indicate their relative better position within the grading categories concerned. Mailung Khola Jal Vidyut Company Limited runs 5,000 KW Mailung Khola Hydropower project located in Haku VDC, Rasuwa. As part of its IPO process, the company will issue 10% of its capital to the local people of the project-affected areas and 20% to the general public and its staffs. After the IPO, the paid up capital of the hydropower company will reach Rs 36.81 crore with shareholding structure of promoters – people of the affected area – general public at 70:20:10.