New NERC directives to allow merger of hydropower firms

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June 07, 2020

Kathmandu: The practice of merger, acquisition and transfer of ownership among banks and financial institutions will now be implemented in the hydropower sector as well.

Issuing a draft of the directives yesterday, Nepal Electricity Regulatory Commission (NERC) has said that hydropower companies will be able to merge, acquire or transfer ownership.

The directive states that NERC will facilitate the merger or transfer of partial or full ownership of hydropower companies.

The guideline states that any individual or company holding hydropower licence will be able to buy and sell 50 percent or more shares of another hydropower company in poor financial condition.

If the licensed entities want to merge with each other, they will have to submit an application to the commission, by passing a special resolution through its general assembly in the case of a public company. In the case of a private company a decision has to be taken by the board of directors to that effect. Such application may be approved by the commission within 90 days after assessing the acquiring company.

The merger application may be rejected if the deal results in adverse impact on power sector, protection of consumer interest, public interest and seriously affects structure, financial condition or staff management of the concerned entities.

As per Schedule 7 of the directive, companies with yearly transaction of Rs 100 million need to pay a fee of Rs 100,000 to apply for merger or acquisition.

Most of the hydropower companies are in poor shape as the 33 hydropower companies listed on the Nepal Stock Exchange have an average share price of Rs 100.

“Growing risk in the construction of hydropower project has also had a negative impact on the capital market. So, we have decided to introduce the M&A between hydropower projects,” said Dilli Bahadur Singh, chairperson of NERC. “Now, weak companies or institutions will be able to merge and improve their financial health and expand investment in projects or secure public shares and income and profits. This can reduce the risk of public investment even after the project construction and operation period,” he added.

A meeting of the board of directors of NERC has decided to ask the concerned stakeholders to provide their opinions, suggestions and feedback on the draft guideline within 15 days.

 

Source: The Himalayan Times