KATHMANDU, OCTOBER 16
ICRA Nepal, the first credit rating agency of the country and a subsidiary of ICRA (Investment Information and Credit Rating Agency) Ltd of India, has assigned an issuer rating of [ICRANP-IR] AA+ to the state-owned Nepal Electricity Authority (NEA).
The NEA had received the same rating last year as well.
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 on several factors, including financial condition of the authority, assets, business and financial risks, managerial capacity and many more. The credit rating of the authority is based on the same analysis.
Credit rating is a valuable tool used to assess the creditworthiness of an individual or an organisation and convey an informed judgment.
It provides a straightforward and easily understandable indicator of the inherent risk associated with the organisation's capacity to meet its financial obligations.
Kulman Ghising, managing director of NEA, attributed this rating to a high degree of financial stability and a strong capacity to fulfil its financial commitments.
In line with the Nepal Electricity Authority Act, 1984, the NEA has already submitted a proposal to the Ministry of Finance for the issuance of the company's shares to the general public after implementing the third financial restructuring.
The proposal includes plans to issue primary shares valued at approximately Rs 60 billion to the general public, thereby maintaining the authority's paid-up capital at around Rs 300 billion and adding a premium of 10 per cent. This strategy aims to maintain the book value of the authority's shares at around Rs 125 while issuing shares with an equivalent premium.
NEA Managing Director Ghising stated that with the institution's approved credit rating, the process of issuing shares can proceed, subject to government approval.
"Based on the credit rating, we have observed that the institution's financial health is strong, demonstrating its ability to meet debt obligations.
We've also made significant strides in rapidly replacing electricity imports during winter months to fulfil domestic demand, achieving consistent growth in electricity exports, increasing internal electricity consumption, and effectively managing system leakage. With this ongoing success, we anticipate a growth in the organisation's profitability," Ghising remarked.
"We anticipate a substantial capital requirement for system improvement and expansion in order to enhance the reliability, quality, and safety of electricity production projects and supply. To address this, our strategy involves bridging the investment gap using the organisation's earned profits and the funds obtained through share issuance," Ghising explained.
The authority is actively engaging in long-term power purchase agreements (PPAs) with hydropower projects, whether developed by domestic or foreign investors.
The outcome of the credit rating reinforces the confidence that there is minimal investment risk associated with these agreements, given the authority's robust financial capacity to finance such projects.
ICRA emphasised that NEA, wholly government-owned and holding a monopoly in electricity transmission, distribution, and trade domestically and abroad, plays a crucial strategic role, supported by its substantial 1,100-megawatt power generation capacity and consistent government investments through the budget.
The authority's consolidated net profit was Rs 12.330 billion in the last financial year 2022-23. The electricity leakage of the system is 13.46 per cent.
A version of this article appears in the print on October 17, 2023, of The Himalayan Times
