Panchakanya Mai Hydro IPO rated Grade 4 by ICRA Nepal; Aankhu Khola receives lowest grading of Grade 5

ICRA Nepal Limited, Nepal’s only credit rating agency licensed by SEBON, has assigned an “[ICRANP] IPO Grade 4” rating to the proposed Initial Public Offering (IPO) of Panchakanya Mai Hydropower Limited (PMHL), indicating below average fundamentals. PMHL is proposing to come out with an Initial Public Offer of 2,200,000 units IPO shares of face value Rs 100 each at par. Of the total shares, 1,100,000 shares will be issued to project affected areas in the first stage while remaining 1,100,000 shares will be issued to the general public and the company’s staff. PMHL operates a 12 MW Upper Mai Hydropower Project in Ilam district. The company is constructing a 6.1 MW Upper Mai “C” (cascade) project which is approaching completion. ICRA Nepal has factored in the relatively weak return potential from the plants, lower contracted capacity with Nepal Electricity Authority and even lower tariff rates. However, the grading takes into account the experience of promoter group which is involved in diversified line of businesses. In spite of exposure to risks including hydrology and credit, the ability of the project to achieve its design operating parameters will be the key driver for the project returns. Likewise, ICRA Nepal has assigned “[ICRANP] IPO Grade 5” to the proposed IPO of Aankhu Khola Jalvidut Company Limited (AKJCL), indicating poor fundamentals. Aankhu is proposing to come out with an Initial Public Offer of 2,000,000 units of equity shares of face value Rs 100 each at par. Of the total shares, 800,000 shares will be issued to project affected areas while remaining 1,200,000 shares will be issued to general public and staff. The company operates 8.40 MW Aankhu Khola-1 Hydropower project in Dhading district. The lowest grading assigned by Aankhu Khola factors in poor financial profile of the company in development and operations of its existing project, high project costs, moderate operational performance coupled with fixed tariff and high financial leverage. The hydropower plant has only generated net 50% in FY 2072/73 and 53% of its plant load factor in the first nine months of FY 2073/74, resulting in weak earnings and insufficient cash flows. ICRA Nepal states that the ability of the project to achieve its design parameters, attract strong institutional promoters and experienced management staffs, and continued payments of its debt will be the most important driver for achieving good 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.