Nepal | October 17, 2019

Hydropower developers seek removal of credit rating provision

HIMALAYAN NEWS SERVICE

Kathmandu, September 29

Even as the share price of hydropower sector has continuously dipped in recent days, hydropower developers have demanded the removal of credit rating and under-writer provisions in the sector.

Developers have urged government to remove provision of credit rating for hydropower firms. At present, two rating agencies, namely ICRA Nepal and Care Rating Nepal have been grading the firms that have been issuing initial public offerings in the market as per their strengths and weaknesses.

The rating agencies have been grading the hydropower firms based on a scale of 1 to 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. For those companies that have been assigned Grade 2, 3 and 4, it indicates average fundamentals. However, if the ‘+’ (plus) sign is appended to the grading symbols then it indicates the firm’s relatively better position within the grading category concerned.

The hydropower developers are concerned with the grading system because if the investment in any project is high then the grading is usually low, which deters people from buying the shares of the concerned project. Hence, developers are compelled to often sell the shares at very cheap prices to those large financial institutions that are providing the underwriting services to those projects.

“The grading and underwriting provisions have been affecting our business,” said Kumar Pandey, vice-chairman of Independent Power Producers’ Association – Nepal (IPPAN), adding that the government needs to create a conducive environment for hydropower development in the country.

Pandey further said the developers are in trouble as the rate of returns is uncertain as some of their hydropower plants are unable to operate in full capacity during dry seasons. As a result, they are unable to supply electricity as per the power purchase agreement with Nepal Electricity Authority.

 


A version of this article appears in print on September 30, 2019 of The Himalayan Times.


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