Things to know for prospective investors about IPO of Mountain Energy Nepal Limited; high chance of lottery for 10 units

Company Profile:

Mountain Energy Nepal Limited is a public limited company promoted by business persons having experience in the hydropower sector. The company was incorporated in Nepal under the Companies Act, 2054. There are two projects running under its wings; Tadi Khola Jalavidyut Aayojana (5 MW) and Mistri Khola Jalavidyut Aayojana (42 MW). Tadi Khola Jalavidyut Aayojana has already started its commercial operation whereas Mistri Khola Jalavidyut Aayojana is yet complete the construction of the project.

The projects are under the Boot (Build, Own, Operate, and Transfer) mechanism. As per the Generation License, from the Government of Nepal- Ministry of Energy, the projects shall be handed, on whatever conditions the project is, to the GON after the expiry of the Generation License, which is 35 years.

About the Issue:

Mountain Energy Nepal Limited is issuing 1,968,027 units of ordinary shares worth Rs. 19.68 crores to the general public from Kartik-26. The early closing date of this IPO issue is on Mangsir-02, 2077. If this issue is not subscribed till Mangsir-02, 2077 then the issue will be extended up to Mangsir-10, 2077.

Out of the total issue offered i.e. 1,968,027 units; 2% of the issue i.e. 39,361 units have been allotted for the employees of the company and 5% of the total issue i.e. 98,401 units have been allotted for the mutual fund. The remaining 1,830,265 units are for the general public.

Applications can be placed for a minimum of 10 units and a maximum of 20,000 units. Nabil Investment Banking Limited has been appointed as the issue manager for the IPO issuance.

After the IPO issue, public holding will be 20% (including locals of the affected area) and promoters holding will be 80%.

Mountain Energy Nepal Limited:

CARE Rating:

CARE Nepal has assigned a grading of “CARE-NP IPO Grade 4+”, indicating below-average fundamentals; to the proposed IPO of Rs. 19.68 crores of Mountain Energy Nepal Limited (MENL). CARE assigns IPO grades on a scale of Grade 1 to 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals.

Key Grading Strengths:

• Experienced promoter and management team
• Track record on operating hydro project- TKHEP
• Power purchase agreement with sufficient period coverage
• Moderate counterparty risk and prompt bills realization from NEA
• Financial closure achieved for the project cost and relatively low cost per MW
• Shortage of power in the country
• Government support for the power sector
• Major developments towards Power Evacuation

(Source: http://careratingsnepal.com/wp-content/uploads/2019/03/Grading-of-CARE-NP-IPO-Grade-4-assigned-to-Initial-Public-Offer-of-Mountain-Energy-Nepal-Limited.pdf)

Capital Structure:

Shareholding Structure:

Board of Directors:

Purpose of IPO issue:

As per the offer letter, the total amount of money i.e. Rs. 39.36 crores raised from the issue including the amount raised from the issue for the locals of the affected area, Rs. 14 crores will be invested in Mistri Khola Jalavidyut Aayojana and remaining Rs. 25 crores will be used to pay out the debts.

Projects:

Financial Highlights:

Conclusion:

Hydropower is considered one of the most important sectors for the development of the economy because of its huge potential to generate electricity which can be sold to other countries benefitting the economy.

That being said, for the last few years, hydropower stocks in the stock market were not digested by the investors in the market for numerous reasons; some of them being the loss of craze for the investors in the hydropower stocks, the trend for the hydro stocks in the market was over which is why most of the stocks were trading below their par value of Rs. 100.

However, when we observe the current scenario, investors have been interested in this sector again, which is shown by the huge demand for the last few months. Almost all of the stocks have been trading above their par value signifying the high level of confidence in the sector.

When we look at the current trend of IPO in the market, we see that more than 9 lakhs investors have been applying in the recent issue’s which is a huge number when we compare it with past applicants. This shows that, even if a quarter of this number applied for the issue of Mountain Energy Nepal Limited (MEN), the issue will be oversubscribed. So, it is advisable to apply only 10 units.