KATHMANDU, FEBRUARY 27

The issuance of [ICRANP-IR] AA+ rating will enable the Nepal Electricity Authority to borrow directly on its institutional guarantee, according to NEA's Executive Director Kulman Ghising.

ICRA Nepal, the first credit rating agency of the country and a subsidiary of ICRA Ltd of India, recently assigned an issuer rating of [ICRANP-IR] AA+ to the state-owned NEA. The rating is considered to have a high degree of safety regarding timely servicing of financial obligations. Such issuers carry very low credit risk.

According to ICRA Nepal, NEA's credit rating is based several factors including financial condition of the authority, assets, business and financial risks, managerial capacity and many more.

According to Ghising, the NEA that has been borrowing from development partners such as the World Bank and the Asian Development Bank on government guarantees. 'Following the credit rating, the NEA can now seek loans and borrow directly from such bodies on its institutional guarantee.'

He further said the rating will boost investor confidence and that investors will feel more secure and promote investment in the hydropower sector.

In its rationale, ICRA Nepal has stated that the rating has considered NEA's healthy revenue growth, driven by rising domestic energy demand.

'This is expected to continue, given the various measures being taken by NEA/Nepal government to boost the internal energy demand and additional demands from the new entrants in the industrial sector.'

Listed as its credit strengths are sovereign ownership, seasoned management, and NEA's strategic importance to the Nepal government; good revenue growth in recent years and healthy domestic demand outlook; likelihood of the operating margins to improve through import substitution by cheaper domestic production; among others.

The credit challenges of the entity, on the other hand, include possible risk of energy spill over until materialisation of export in large scale; execution risks for projects under subsidiaries/associates; regulatory risks, etcetera.

The rating is only an opinion on the general creditworthiness of the rated entity and not specific to any particular debt instrument, according to ICRA Nepal.

On a consolidated basis (including 18 subsidiaries and six associates), NEA grossed an operating revenue of Rs 81 billion in fiscal year 2020-21, with Rs 71 billion towards sale of electricity and the remaining Rs 10 billion towards other income (mainly surcharge of delayed payment and income from other sources, mainly rental income of optical fibre).

In fiscal 2020-21, its consolidated net profit was Rs eight billion. The entity's equity capital was Rs 164 billion as of mid-July 2021.

The NEA recorded a profit of over Rs 12 billion in the first six months of current fiscal year.

A version of this article appears in the print on February 28 2022, of The Himalayan Times.