Mabilung Energy Gets ICRANP Credit Rating For Bank Facilities of Rs.655mn

Kathmandu: Mabilung Energy Limited, a joint venture of Asian Life Insurance, has received credit rating for the bank facilities of Rs. 655.9 million. The company has received ‘ICRANP LB plus’ for long-term debt and A4 for short term bank facilities. The company is constructing Upper Piluwa Khola 3 hydropower project Sakhuwasabha district.

Mabilung Energy Limited is promoted by three main institutional investors including Asian Life Insurance(32 percent) Guheswari Merchant Banking and Finance Limited(19 percent) and Trust Energy Pvt Ltd(10 percent). Apart from this, the investment of the group of six people together accounts 39 percent.
Source: Icra Nepal

The strength of the project:

There is a plan to evacuate the energy of the project from the powerhouse to the distribution system of the Nepal Electricity Authority(NEA). Baneshwar substation (part of Koshi corridor) of Sankhuwasabha district is planned to be connected to the transmission line through a 14 km long 33 KV single circuit. The proposed connection point for power evacuation i.e. Baneshwar substation and other related substations and transmission lines are already operational. Therefore, the risk of the energy produced by the project not being evacuated is low.

Since there is a power purchase agreement(PPA) with the NEA for a span of 30 years for 4.95 MW capacity under the terms of take or pay, the risk of price fluctuation and energy wastage is very low. The sales rate for this project is Rs 4.80 per Kilowatt hour for wet season (mid-April to mid-December) and Rs. 8.40 paisa per Kilowatt hour for dry season. Apart from that, there is a condition that the tariff rate should be increased at the rate of 3 percent annually for eight years after 1 year from the date of commercial production.

The weak side of the organization

The 4.95 MW project is currently in the middle stage of construction as the physical progress till June 2022 is between 35 to 40 percent. Rating agency ICRA Nepal has mentioned that the promoters of this project have no prior experience in building a 4.95 MW capacity project, which increases the possibility of risk. Moreover, any unexpected delay in hydropower project construction due to natural calamity or any other reasons may increase the cost.

In the clause of the PPA, there is no provision for compensation from the NEA in case of any damage caused to the hydropower project due to adverse river flow. The Upper Piluwa Khola 3 Hydroelectric Project gets its water from the Piluwa River (82 percent hydrology) and the Sikhuwa River (18 percent hydrology) for its power generation. Both these streams are undammed and rain-fed rivers. If adverse conditions arise due to natural disasters in that area, it will have a significant impact on power generation and overall financial accounting.

Plan to issue 30 percent primary shares

The project is expected to be completed at a total cost of Rs. 937 million in the ratio of 70:30 debt and capital. Out of the total equity funding of Rs. 281.0 million, 70 percent is planned to be raised from the promoters and the remaining 30 percent from IPO issue.

From the promoters till mid-July 2022 (until Asar end 2079) Rs. 150 million has been invested. The company plans to issue IPO after 50 percent of the physical infrastructure construction is completed. Rating agency ICRA Nepal has mentioned that although the entire loan agreement for the project has already been made according to the projection of the budget, the subject of the existing credit crisis in the banking sector will also be monitored.

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