ICRA Nepal has assigned a rating of [ICRANP] IPO Grade 4+ to the proposed initial public offering (IPO) of Terhathum Power Company Limited (TPCL), indicating below-average fundamentals. TPCL is proposing to come out with an IPO of 1,200,000 equity shares with a face value of NPR 100 each, at par. The IPO proceed has been planned to be utilized towards the development of the 7.5-MW Upper Khorunga Small Hydropower Project.
The assigned grading factors in the moderate return potential of the 7.5-MW Upper Khorunga Small Hydropower Project that arises from the relatively lower cost of development (~NPR 183 million per MW) and expected completion of the project within the budgeted cost and estimated timeline of the Required Commercial Operation Date (RCOD) of December 17, 2019. The project, already in an advanced stage of completion (~85% of physical progress), is expected to be completed within the scheduled RCOD. This would help it utilize all the tariff escalations and maintain a healthy levelised tariff, which is crucial in determining the revenue profile of the company amid the fixed tariff structures.
The grading also takes into consideration the low tariff risk and low offtake risk emanating from the firm power purchase agreement (PPA) with pre-determined tariff rates at take or pay model, and the positive demand outlook for the energy sector, owing to the supply-demand gap in the power sector and the increasing energy consumption levels in the nation. Similarly, the evacuation risk remains low amid an already built and operational Jiri Khimti substation of the NEA for evacuation of power to be generated by the project. Going forward, TPCL’s ability to commission the project within the budgeted cost (NPR 1,376 million), meet the estimated timeline of RCOD, collect IPO proceeds to avoid incremental interest, achieve the designed operating parameters as well as interest rate volatility in the market would be the key drivers in determining the returns for the project.
Incorporated in August 16, 2009 as a private limited company, Terhathum Power Company Limited (TPCL) was converted to a public limited company on June 21, 2018. The paid-up capital of the company as of mid-July 2019 was NPR 280 million, which is 100% promoter held. After the proposed IPO, the same would reach to NPR 400 million and would be held in a ratio of 70:30 by the promoters and the public. The major shareholders include Mr. Mohan Kumar Dangi (8%), Mr. Bhupati Lal Shrestha (4%), Mr. Ganesh Prasad Kattel (4%), Mr. Pramod Shrestha (3%), Mr. Bijay Sambhample (3%), Mr. Dharma Raj Khadka (3%), Mr. Lachhuman Tiwari (3%), Mr. Shiva Nath Khapung (3%), Mr. Bhawani Prasad Khapung (3%), Mr. Yadav Khapung (2%) and Mr. Mohit Dangi (2%). The rest of the ~65% shares are held by 275 individual shareholders.
Source: ICRA Nepal