NEA IPO Poised for Success with AA+ Credit Rating

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The state-owned power utility plans to raise Rs60 billion from IPO and use it to improve the power infrastructure.

As the Nepal Electricity Authority prepares to issue Initial Public Offering (IPO) at premium rate, the state-owned power utility has received a very good rating by a credit rating agency.

ICRA Nepal, which conducted the rating of the power utility body, has given it the issuer a solid rating of ‘AA+’.

“Issuers with this rating are considered to have a high degree of safety regarding timely servicing of financial obligations,” the rating agency said. “Such issuers carry very low credit risk.”

The signs of + (plus) or – (minus) appended to the rating symbol indicates the entity’s relative position within the rating categories concerned.

The rating is only an opinion on the general creditworthiness of the rated entity and is not specific to any debt instrument, ICRA Nepal said.

The NEA has already sought the finance ministry’s approval to issue an IPO. “We have requested approval to conduct an IPO for raising Rs60 billion,” said Jayaraj Bhandari, director at the NEA.

Another NEA official said that they planned to issue shares by maintaining a book value of Rs125 per share and equivalent amount as premium amount. “Our plan is to issue an IPO for 10 percent of the total paid up capital of the NEA,” the official said.

Currently, the NEA has been focussing on improving its transmission and distribution networks to improve the reliability of power supply.

According to the NEA, it has to invest as much as $4 billion (Rs534 billion) by 2030 to improve the existing transmission infrastructure alone.

NEA Managing Director Kul Man Ghishing said in his presentation in March that the state-owned power utility would require $2.51 billion for the planned and ongoing transmission line projects within the Kathmandu Valley and outside. Likewise, an additional $1.44 billion will be required for constructing substations. “The money to be raised through the IPO will basically be used to improve the power infrastructure,” the NEA official said.

The good credit rating of the NEA will give it an edge in raising public money. According to the credit rating agency, till now, the NEA’s entire standalone borrowings have been from the Nepal government that liaises with international lending agencies for sourcing debt as well as serving them on behalf of the NEA without imposing structured repayments on the NEA.

“ICRA Nepal expects the continuation of similar support to the NEA going forward as well,” ICRA Nepal said.

According to the rating agency, the rating also continues to take comfort from NEA’s good financial profile underpinned by healthy revenue growth from energy sales.

“Nonetheless, the rating is constrained by sizable capital commitments of the NEA towards the ongoing upgrade and reinforcement of transmission and distribution infrastructures,” the agency said, “which could keep the NEA’s liquidity under pressure over the medium term.”

 

Source: The Kathmandu Post