ICRA Nepal has assigned “[ICRANP] IPO Grade 4” grading to the upcoming Initial Public Offering (IPO) of Chhyangdi Hydropower Limited, indicating below average fundamentals. Chhyangdi Hydropower Limited is proposing to come out with IPO of 5,40,000 shares worth Rs 5.40 crore to be floated to the general public. The company had earlier floated IPO worth Rs 2.70 crore to the local peopleof the project affected regions in Lamjung district.
As per ICRA Nepal, the assigned grading has been limited by the company’s weak financial profile as a result of high development cost and moderate operational performance of its 2MW Chhandi Khola Hydroelectricity project. Although the powerplant has been running since March 2016, the project has been operating at a load factor of 57% only, generating an average of only 83% of the contract energy.
The company plans to utilize the proceeds from this issue in developing a 4MW Upper Chhandi project. However, the returns are unlikely to be good enough seeing the high project cost per MW and its exposure to implementation risks such as increase in time, cost estimates, tariff and funding.
Nonetheless, the grading is supported by the promoter group’s ability to execute the project as demonstrated by the commissioning of its 2MW project, presence of firm Power Purchase Agreement (PPA) with Nepal Electricity Authority and presence of transmission line. Going forward, ability of the company to develop the proposed project within the budgeted time and cost estimates will be the key variables that can impact returns to its shareholders.
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.
Source : Share Sansar