Nepal Electricity Authority (NEA) has obtained a ‘Double A Plus’ credit rating in its preparations to launch an Initial Public Offering (IPO) at a premium price.
ICRA Nepal has provided NEA with a credit rating of ‘ICRA NP Double A Plus’, which signifies the ability of the institution to meet its financial and economic obligations in a timely manner, ensuring a high capacity to safeguard its financial and economic responsibilities. Institutions receiving a ‘Double A Plus’ rating are associated with significantly lower risks in financial transactions.
The Authority had obtained the same rating in the previous year as well. ICRA Nepal had conducted an analysis of the Authority, considering factors such as its financial status, assets, business and financial risks, internal and external environmental elements affecting managerial capability, and operational effectiveness.
Under the credit rating system, individuals or organized institutions evaluate the creditworthiness of a company in relation to its bond quality and express their opinions. This provides an indication in symbolic form regarding the institution’s capacity to fulfill financial responsibilities, making it easier to understand.
The Authority has submitted a proposal to the Ministry of Finance to issue shares to the general public as per the Nepal Electricity Authority Act, 2041 through the third financial restructuring.
The Authority has allocated approximately NPR 3 billion for the public offering, with a 10% public issuance. Additionally, the Authority has proposed a premium of around NPR 60 billion, equivalent to NPR 125 per share, in addition to the book value, to be issued through the share offering.
The establishment of the Authority under full government ownership is aimed at ensuring capable, reliable, and easily accessible electricity supply, with particular emphasis on production, transmission, and distribution. Besides domestic electricity production, the Authority has been engaged in cross-border electricity trading.
The government supports the Authority through annual budget allocations for the implementation of its electricity development programs, investment in shares (either in cash or through interest/subsidy financing), and provision of necessary funds for operations.
Executive Director Kulman Ghising stated that the Authority has demonstrated a high capacity for secure financial stability through the Double A Plus credit rating received from the public agencies. He also mentioned that the process of share issuance will be expedited with approval from the government, given the favorable financial health indicated by the credit rating.
“Through credit ratings, the financial health of the institution has been viewed positively, with the capacity to repay loans seen as strong,” he stated. “The rapid replacement of imported electricity with domestic production within a few months and the consistent increase in electricity exports and the effective management of the system have led to increased profits for the institution.”
He emphasized that the construction of long-term hydroelectric projects by domestic and foreign investors is governed by a Power Purchase Agreement (PPA) with the Authority. The results of the credit rating indicate that the Authority has a high financial capacity, thus minimizing investment risks in such projects.
ICRA Nepal affirmed that the Authority has remained under full government ownership, possessing the exclusive right to purchase and sell electricity domestically and internationally, with an installed electricity production capacity of nearly 1,100 megawatts, including associated companies. The government allocates loans and investments in shares to the Authority through the budget every year, as mentioned.
ICRA Nepal highlighted that the commitment of funds for system improvement and expansion in transmission and distribution systems could exert pressure on the Authority’s cash flow in the short term .