Need for geniune Private Placement Company in Hydropower Development.

Private Placement can expedite the hydropower development in the country. Here are the two recent examples of mine where I am working as a consultant.

Api Power Company Limited is the first one. The company is developing 8.5 MW project in Darchula District. The project is under construction and is expected to come into operation within 12 months. It has appointed NIBL capital as an issue manager for IPO. Initially, the total IPO amount was 49% of the total equity. When this news was out in the media, the public rush to the company in order to invest in promoter shares. It saw an overwhelming response and now, it has decided to lower the IPO amount to 30 percent.  (The actual IPO of the company is going to happen after 3 months.)

Likewise, Arun Kabeli Power Limited is the next company. It is developing 25 MW in the eastern part of Nepal. It has got all the statutory approvals and currently, negotiating with banks for debt. The initial idea was:- 51% of the total equity from developers and the remaining 49% through IPO. But the plans were out in the public. In return, general people stayed in the queue to invest in promoter shares.

Now, it has stopped taking promoter shares from general people in order to float at least 30 percent through IPO. Even without the financial closure yet, the whole phenomenon of the investors is quite interesting.

One of the main reasons for this peculiar behavior of public is the rate of allotment when applied through IPO. The recent trend shows that around 1 to 3 percent of the total application will actually get allotment when applied through IPO. But promoter shares can be purchased in any amount (there may be restriction in some case).

People may argue that application through IPO can be traded as soon as it is listed in NEPSE. But for those who do not mind waiting for three years will invest in company like Api Power and Arun Kabeli that is going to do IPO in very near future anyway.

On the contrary, Bank and Financial Institutions are not able to fulfill their obligations due to lack of projects. The current minimum energy and agriculture lending requirement is 10 percent of the total loan disbursement. In numbers, Bank and Financial institutions have to invest NPR 88 billion in energy sector whereas 17 billion was invested in the hydropower sector by the end of the last fiscal year (agriculture is negligible)

Here is the bottleneck

Without equity investment, no bank is going to finance the project. Although developers can raise equity up to 49% during construction through IPO, arranging 51% percent is the biggest challenge for developers.

Possible solution

There is a need for genuine private placement companies. General public are interested to invest in hydropower companies regardless of promoter or public shares.

The main reason for the public to be interested in promoter shares is due to short lock-in period. The lock-in period for hydro promoter shares is only 3 years from the date of listing in NEPSE. After that, there is no difference in share price between promoter and public shares. Currently, hydropower shares of listed companies are trading at NPR 430 to NPR 2,200.

Hence, the concerned authorities have to step in to tap the opportunity for speedy hydropower development by creating mechanism for genuine Private Placement in such a way that the public confidence will be high in these firms rather than the developing company itself.