ICRA Nepal has assigned a short-term rating of [ICRANP] A3 (pronounced ICRA NP A three) to the short-term fund-based limits of NPR 700.0 million of Hathway Investment Nepal Limited (Hathway).
Hathway Investment Nepal Limited is a private equity investment company registered as a public company. The company
was registered in 2009 and commenced its operation in 2011.
Hathway trades various listed and unlisted securities and real estate, among others. The company also provides private equity funds to small and medium enterprises. Hathaway’s registered and corporate office is in Hathway complex, Lainchaur, Kathmandu.
The business is chaired by Mr. Hem Raj Dhakal, who holds a 30.1% stake in the company. Other key shareholders include SR Hydro & Investment Pvt. Ltd (28.1%), Mr. Ambika Prasad Poudel (9.2%), and Nimisha Investment Pvt. Ltd (5.7%). The remaining stake is held by 32 other individuals.
Positive Rating Determinants
The rating assigned factors in Hathway’s adequate experience in the Nepalese capital market (operating since 2011). The rating also takes comfort from the financial strength and experience of its promoters (including individuals associated with the IME group1, which has a strong presence in the Nepalese business arena, including financial sector entities). The rating assigned also considers Hathway’s strong capitalization and low gearing. ICRA Nepal also notes Hathway’s comfortable liquidity position, given its sizeable investments in listed and liquid securities (which remain adequate vis-àvis the debt obligations), and the adequate headroom in the existing drawing power against the sanctioned bank limits.
The rating is also comforted by Hathway’s good track record of profitability, including trading profits in the last four to five years (profits reported in four out of the last five years ending FY2020).
Negative Rating Determinants
The rating assigned, however, remains constrained by the significant market risk associated with the equity market and the sizeable real estate investments of Hathway in relation to its net worth. Sizeable investments in real estate, as well as thinly traded promoter shares, could stretch the company’s liquidity profile during the market downturn.
Moreover, notwithstanding the general improvement witnessed in the stock market participation and infrastructure in the last 12- 18 months, the liquidity in the capital market remains relatively moderate (especially to absorb the supply from large institutional players like Hathway), which can result in higher impact cost while selling the investments.
However, this risk is mitigated to some extent by the limited share of Hathway’s holdings in most of its investee companies. Post Covid-19, the market regulator closed the trading activities on stock exchanges for a fairly long period of three months (between 22 March 2020 and 29 June 2020).
A similar shutdown also occurred in the aftermath of the April 2015 earthquake where the stock exchange was closed for about a month (between 23rd April 2015 and 24th May 2015). Such events could also significantly impact the company’s liquidity, given its limited non-trading revenues which increase its reliance on trading activities for meeting the operating expenses and debt obligations. The ability to manage the downside risk, amid the market volatility, remains critical to Hathway’s incremental financial profile.
Key Financial Indicators
Going forward, the company’s ability to maintain adequate portfolio liquidity, lower the proportion of illiquid investments, and maintain comfortable cover on the bank loan against the liquid investment will remain key rating sensitivities. Any major changes in capital market regulations, which can impact market value or liquidity, will also be key rating sensitivities.