"One hydropower
project one company" This is what every hydropower company is doing. But,
what if a company wants to develop multiple hydropower projects in
various locations/districts without establishing separate companies?
In my opinion, this is the right approach since hydropower
projects have to be handed over to Nepal government free of cost at the end of
30 years. So hydropower projects have to be treated as products with definite
lives. On the other hand, the companies have to remain forever (the basic
concept).
The strategy to construct multiple projects without establishing separate companies also helps to increase the value by reducing the number of shares in secondary market. Unfortunately, this is not the actual scenario.
If we look at the trend, new hydropower companies that are making entry in NEPSE have the same owners. Only the name of the company is changed. This will create over supply of hydropower shares in the long run.
However, regulations to support the idea of developing multiple projects under same company are very unclear and conflicting (or maybe my understanding is wrong. Feedbacks are highly welcome.)
We know '10 percent rule'. A hydropower project has to allocate 10 percent shares to local people of the project affected area if the company decides to go public. Question here; how will this mandatory requirement be fulfilled?
According to SEBON, "the corporate body (Hydropower Company) using local resource and material as its raw materials shall be required to set aside at least fifteen percent of its issued capital to the public and ten percent of its issued capital for the people residing in the area affected by the industry".
First confusion:
Clearly, SEBON rules out the option of constructing new projects in separate locations/districts by the same company since 10 percent rule again applies in the new project. This means, those companies that have already distributed 10 percent local shares can not construct new projects by its own resources without creating a separate company. Or it may seem that the only viable option is to raise the issued capital in order to accommodate '10 percent rule' again.
If the latter is the way to go, then the conflicting scenario arises are:-
a) What about the ratio of promoter, local and general public if a company is forced to raise the issued capital just to accommodate the additional '10 percent rule' when the existing structure already consists of just 51% promoter holding? (51 percent is the current threshold). Will promoter shareholding have to be increased forcefully?
b) if 'yes' at what price (promoter and local both)? Can a company issue shares at premium if it has met all the criteria for 'premium share issuance' set by our company act?
One may argue that the company can construct the project even without offering local shares as '10 percent rule' is applicable for those who decide to go public. But in practical scenario, this will not be possible. The locals will surely demand this portion and we have seen it. Those who do not offer local shares are facing a lot of obstructions from the public. For instance, Bhotekoshi hydropower project.
Just to mitigate this problem, there are few companies (new) to my knowledge that are planning to just meet this '10 percent rule' without offering shares to general public. And this is where second confusion arises.
Second confusion:
According to SEBON, if a company wants to sale shares to more than 50 people at a time, it has to do the public issuance. This means it has to go through all the procedures set by SEBON even if a company has to fulfill the ‘10 percent rule’
In such case, can its share be listed in NEPSE? If the answer is 'No' how will be they communicated? I believe most of the investors are attracted in shares due to the Capital Gain.
The strategy to construct multiple projects without establishing separate companies also helps to increase the value by reducing the number of shares in secondary market. Unfortunately, this is not the actual scenario.
If we look at the trend, new hydropower companies that are making entry in NEPSE have the same owners. Only the name of the company is changed. This will create over supply of hydropower shares in the long run.
However, regulations to support the idea of developing multiple projects under same company are very unclear and conflicting (or maybe my understanding is wrong. Feedbacks are highly welcome.)
We know '10 percent rule'. A hydropower project has to allocate 10 percent shares to local people of the project affected area if the company decides to go public. Question here; how will this mandatory requirement be fulfilled?
According to SEBON, "the corporate body (Hydropower Company) using local resource and material as its raw materials shall be required to set aside at least fifteen percent of its issued capital to the public and ten percent of its issued capital for the people residing in the area affected by the industry".
First confusion:
Clearly, SEBON rules out the option of constructing new projects in separate locations/districts by the same company since 10 percent rule again applies in the new project. This means, those companies that have already distributed 10 percent local shares can not construct new projects by its own resources without creating a separate company. Or it may seem that the only viable option is to raise the issued capital in order to accommodate '10 percent rule' again.
If the latter is the way to go, then the conflicting scenario arises are:-
a) What about the ratio of promoter, local and general public if a company is forced to raise the issued capital just to accommodate the additional '10 percent rule' when the existing structure already consists of just 51% promoter holding? (51 percent is the current threshold). Will promoter shareholding have to be increased forcefully?
b) if 'yes' at what price (promoter and local both)? Can a company issue shares at premium if it has met all the criteria for 'premium share issuance' set by our company act?
One may argue that the company can construct the project even without offering local shares as '10 percent rule' is applicable for those who decide to go public. But in practical scenario, this will not be possible. The locals will surely demand this portion and we have seen it. Those who do not offer local shares are facing a lot of obstructions from the public. For instance, Bhotekoshi hydropower project.
Just to mitigate this problem, there are few companies (new) to my knowledge that are planning to just meet this '10 percent rule' without offering shares to general public. And this is where second confusion arises.
Second confusion:
According to SEBON, if a company wants to sale shares to more than 50 people at a time, it has to do the public issuance. This means it has to go through all the procedures set by SEBON even if a company has to fulfill the ‘10 percent rule’
In such case, can its share be listed in NEPSE? If the answer is 'No' how will be they communicated? I believe most of the investors are attracted in shares due to the Capital Gain.
I think one other reason why every hydro-power project has its own company is also to contain risk. This is a very common practice all-over the world. For instance, mega conferences (eg. World Economic Forum conference) that take place each year is organized by different legal entity every year. This way, if there is an unfortunate case that results in lawsuit for say World Economic Forum 2015 then only the operating company for that particular year would be potentially liable. Same thing for hydro power projects in Nepal. Any lawsuits potentially arising from a single project will be contained within the Pvt. Ltd. company associated with the project.
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