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ICRA Nepal assigns IPO Grade 5 to proposed IPO of Shuvam Power Limited

ICRA Nepal has assigned "[ICRANP] IPO Grade 5" to the proposed IPO of Shuvam Power Limited, indicating poor fundamentals. Shuvam Power is proposing to issue Initial Public Offering of 6,00,000 units shares to be floated at a par value of Rs 100 per share. hoOf the total shares, 2,00,000 shares will be issued to residents of project-affected area (Sankhuwasabha district) while remaining 4,00,000 shares will be issued to the general public, mutual funds and the company’s staffs. As per ICRA Nepal, the assigned rating is constrained by the poor financial profile of the company, which has accumulated a loss of Rs 3.20 crore as of Chaitra 2073. The plant has operated with maximum recorded plant load factor 50% during past 3-4 years, which is much lower than the contract energy plant load factor of 79%. Furthermore, hydrological risks and interest rate volatility in the market could severely impact the project earnings and returns. The 990 KW Lower Piluwa hydroelectric plant started commercial operation with a delay of 30 months from required commercial operation date. Being a hydropower project with less than 1,000 KW installed capacity, Lower Piluwa HEP is entitled to certain regulatory benefits like indefinite project life with tax holiday, exemption from royalty payment to the government and exemption from energy short supply penalty.

However, these benefits are diluted due to weak project performance and low energy tariff as compared to its peers. Going forward, the ability of the project to minimize the gap between actual generation and contractual energy will be the most important driver for the project returns. Shuvam Power Limited owns and operates a 990 KW Lower Piluwakhola Hydroelectric Project. River Falls Power Limited and Ngadi Group Power are its major promoters. ICRA Nepal assigns IPO grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. For the grading categories 2, 3 and 4, the sign of + (plus) appended to the grading symbols indicate their relative better position within the grading categories concerned. Thus, the grading of 2+, 3+ and 4+ are one notch higher than 2, 3, and 4, respectively.