Kathmandu. Private sector promoted airline company Yeti Airlines Limited has converted all its US dollar (USD) based bank loans into Nepali rupees. It has suffered a loss of Rs 32.70 crore while converting loans in foreign currency into Nepalese at once.
Due to the loss of the company due to the loss of such a huge loss in one stroke, the last financial year (FY) 2082. The net profit of 83 has come down from Rs 64.80 crore to Rs 18.10 crore. The company has converted a loan of $ 2.71 crore into Nepali currency.
Due to the huge difference in the exchange rate of US Dollar at the time of taking loan in foreign currency and the exchange rate of US Dollar while converting it into Nepali currency, the company has been forced to bear huge loss simultaneously during the conversion.
The general public may be curious as to why the company, which is preparing to issue public shares, had to convert the loan into Nepali rupees in such a large amount of loss at once. To understand the reason for this, one has to first understand some background of it.
Due to the continuous war against Iran led by the US in the Middle East since February 28, the price of the US dollar has been falling for a short time but has been rising continuously for a long time. The exchange rate of 1 US dollar was 143.91 rupees on February 28 and it rose to 154.98 rupees on October 2.
According to the analysis of the Traders Union, which has been analyzing and projecting the exchange rate of the international currency, the exchange rate of the US dollar is estimated to be around Rs 165 by the end of October 2027. As the exchange rate of the US dollar increases, the Nepali currency weakens and the purchasing power decreases. As a result, there will be a compulsion to pay even more Nepali rupees than now. Therefore, converting the existing debt in the US dollar to the Nepali rupee on the basis of the prevailing exchange rate provides an opportunity to get rid of the risk of currency devaluation.
The dollar has been rallying at a time of international trade, US President Donald Trump’s policy of restricting foreign imports or imposing high tariffs, the US-led war in the Middle East, the blockade of waterways and the war-induced recession.
As the US dollar continued to strengthen against the Nepali rupee, the airlines were compelled to bear a huge exchange deficit. After the entire loan came in the Nepali currency, even if the value of the dollar increases, there will be no additional financial burden on the payment of the principal interest of the loan. The company has taken this step after the amendment in the provisions related to foreign exchange management of the Nepal Rastra Bank.
Although there may be a huge loss in the financial statements in the short term, in the long run, this decision will provide strong benefits to the company and its shareholders as follows. Due to the elimination of foreign exchange rate risk and the easy liquidity in Nepal’s financial system, the interest rate of the banks is currently on a downward trend. As a result, the interest coverage ratio of the company has improved from 2.98 times in FY 2081. It has improved from 2.98 times in FY 2082. It has increased to 3.54 times in 83.
In the coming years, large fluctuations in the exchange rate will not cause a sudden shock to the profit and loss calculation. This will make it easier to convert the operating profit of the company into a net profit. The direct benefit of which will be received by the shareholders in the form of regular dividends.
