UPCOMING HYDROPOWER IPO IN NEPAL AND LESSON LEARNED FROM THE RECENT IPOs.

After the outstanding IPO success of Ridi Hydropower Development Company Limited that is oversubscribed by 92 times (officially confirmed), other hydropower companies are also in the pipeline. Upper Tamakoshi Hydro Power (UTHP) has sought permission from the Securities Board of Nepal (Sebon) to float 25.42 million units of shares to public, while Barun Hydropower Company has applied for permission to issue 243,000 units of shares to the people in the project affected area that is managed by Civil Capital.

Similarly, NIBL Capital Markets Ltd. has signed agreements with two hydropower companies -- United Modi Hydropower Pvt Ltd and Api Power Company Ltd -- to act as the issue manager and underwriter for their respective initial public offerings (IPOs). Both United Modi and Api Power are going to issue 4,000,000 units each of common stock at Rs 100 per share. 

The other hydropower companies in the IPO pipeline are Ngadi Group Limited and Sanjen Jalavidhyut Company Limited, a subsidiary company of Chilime Hydropower Company Limited. Nyadi Group Limited has signed an agreement with Civil Capital for floating Local and Public shares of Siuri Khola Hydropower Project (5 MW). 

Above are the hydropower companies that are in the IPO pipeline. Moving to the next part, let's analyze the IPO of Century Bank and Ridi Hydropower Development Company Limited.

The Recent IPOs  

Century Bank collected around Rs 26 billion while it offered application for less than Rs 1 billion. Likewise, Ridi Hydropower Development Company Limited received around 90,000 applications for 1.17 million units of primary shares with face value of Rs 100. In total, Ridi Hydropower Development Company Limited collected approximately Rs 11 billion.

The share allotment of Century Bank was not done when IPO of Ridi hydropower was opened. This means, the total collection amount from the two recent IPOs was around Rs. 37 billion while the actual required amount was just around Rs. 1 billion.
 
Reason for IPO craze

People are interested toward IPOs as they expect the price of primary shares bought at Rs 100 each would go up significantly once they are listed in the secondary market. The craze in IPO has to do a lot with the capital gain.

Drawbacks of IPO

The trend in Nepalese IPO indicates that about 1 to 3 percent of the total application will actually get allotment. Hence, the holding cost seems to be significantly high. In many cases, investors will not be able to recoup the total investment (interest cost to be specific) amount even after selling the allotted shares at the forecasted price. The investors' money will get stuck for at least 40 days.

Possible ways to cash-in the enthusiasm of general public by avoiding disappointment.  

The enthusiasm of general public has to be better utilized by the concerned authorities and Security Board of Nepal (SEBON) in an effective manner. Being myself as hydropower analyst, I will obviously suggest to use in hydropower generation. 

As we all know, hydropower developers are struggling to arrange 51% of the total equity. Without 51%, there is no way hydropower companies can float the public shares. On the other hand, Rs. 37 billion invested by Nepalese citizen proves that Nepalese will not hesitate to invest if the project guarantees return (be it a capital gain or dividend). 

In order to speed up the hydropower construction in the country, SEBON should allow capital markets to raise the promoter equity. Right now, SEBON allows capital market companies to raise public opening only. 

Benefits of investment in hydropower
For the Nation

Typically, the cost of producing hydropower projects is around Rs. 16 crores per MW at present (1 billion = 100 crores). With Rs. 37 billion, we can construct enough hydropower projects to fulfill our country’s internal demand. “Do we actually need foreign investment to electrify our nation?”

For the investors
Unlike promoter share of financial institutions, the lock-in period in hydropower companies is just 3 years. This means,  promoter shares can be traded in NEPSE like any other public shares after three years from the date of allotment.  

There is no market risk in hydropower projects as PPA guarantees the market for the produced electricity. All it needs to do is construct the project in a transparent manner. Once constructed, it’s a "cash cow"

This serves the interests of all stakeholders i.e, return to shareholders, fund for the developers to construct hydropower projects and finally energy for the nation.

Now the question arises; whether public will be confident to invest in promoter shares or not? 

SEBON can impose effective Credit Rating, Technical & Financial due diligence, PPA and Generation License and a certain percentage of equity holding by the developers as a mandatory requirement. Once all the requirements are fulfilled, they hydropower companies can raise promoter shares through capital market. It can be like Pre IPOs. 

In this way, public comfort level will be high when the issue managers do the job of “FAIR JUDGEMENT”. 

In addition, public are now aware that they will get only 1 to 3 percent of total application when applied in IPO. So long term investors might be attracted towards the whole idea of being promoter sharesholders. 

For individual reviews regarding hydropower companies, projects, IPOs, Share price speculation, click the following link

Ridi Hydropower Development Company Limited and its share price speculation.

IPO of Barun Hydropower Company Limited

The next upcoming IPO: Api Power Company Limited.

Butwal Power Company Limited

Chilime Hydropower Company Limited

Arun Valley Hydropower Development Company Limited

FINANCIAL CLOSURE OF KABELI B-1 HYDROELECTRIC PROJECT (25 MW).

Upper Tamakoshi Hydropower Project and Its IPO; Fully Explained  

It is big and it is coming: HIDCL’s IPO 

IPO of Ngadi Group Power Limited. 

IPO of Khani Khola Hydropower Company Limited 

IPO of Dibyashwari Hydropower Limited 



Santosh Thapa

Analyst