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Madhya Bhotekoshi Jalavidhyut Company Limited issues IPO to public

A new hydropower's shares has been issued for IPO (Initial Public Offering) from today. This IPO is alos one of the biggest in Hydropower sector. Madhy Bhotekoshi Jalavidhyut Company which is building a 102 MW hydropower in Sindhupalchowk district is mainly promoted by NEA (Nepal Electricity Authority) and renowned company in hydropower projects - Chilime hydropower Compnay. Public can apply minimum of 10 units to maximum 10,000 units of shares for this IPO.


Company Profile:

Madhya Bhotekoshi Jalavidhyut Company Limited (MBJCL) is a public limited company incorporated on July 29, 2010. The company is promoted by Nepal Electricity Authority (NEA) (A GoN Corporation) and Chilime Hydropower Company Limited (CHCL, 51% subsidiary of NEA) for setting up 102 MW run-of-river, Middle Bhotekoshi Hydroelectric Project in the Shindhupalchowk district of Nepal. The project is constructed under BOOT (Build, Own, Operate, and Transfer) mechanism. As per the Generation License, from GoN- Ministry of Energy, dated December 03, 2013, the project shall be handed, on whatever conditions the project is, to the Government of Nepal after the expiry of the generation License, which is 35 years.

About the Issue of IPO of Madhya Bhotekoshi Jalavidhyut Company Limited:

Madhya Bhotekoshi Jalavidhyut Company Limited is issuing 9,000,000 units of ordinary shares worth Rs. 90 crores to the general public from Ashwin 20, 2078. The early closing date of this IPO issue is on Ashwin 25, 2078. If this issue is not fully subscribed till Ashwin 25, 2078 then the issue will be extended up to Kartik 03, 2078.

The company is set to issue a total of 9,000,000 units of shares i.e., 15% of the total issued capital from Ashwin 20, 2078. From the total of 9,000,000 units, 450,000 units i.e., 5% are for mutual funds. 4% of the total units i.e., 360,000 units are for the employee of the company, and the remaining 8,190,000 units are for the general public.

Applications can be placed for a minimum of 10 units to a maximum of 10,000 units.

Global IME Capital Limited has been appointed as the issue manager.


CARE Rating:

CARE Rating Nepal has assigned 'CARE-NP IPO Grade 4+' to the proposed Initial Public Offering (IPO) of Madhya Bhotekoshi Jalavidhyut Company Limited (MBKJCL). The grade assigned to any individual issue represents a relative assessment of the 'fundamentals of the issuer.

Key Grading Weakness:

  1. Project implementation risk- delay in execution of project and cost overrun
  2. Decrease in project life leads to low return from the project
  3. Exposure to fluctuation in the foreign currency exchange rates for the unhedged contractual liabilities
  4. Hydrology risk associated with run-of-river projects
  5. Financial closure not achieved for revised project cost and exposure to volatile interest rates
  6. Power evacuation risk
  7. Exposure to regulatory risk

Key Grading Strengths:

  1. Strong Promoter Group and management expertise in operating hydropower projects
  2. Power purchase agreement with sufficient period coverage
  3. Moderate counter party risk
  4. Fixed priced Civil & Hydromechanical, Electromechanical and Transmission Line Contracts
  5. Shortage of power in the country
  6. Government support for the power sector

How much to apply for the IPO of Madhye Bhtekoshi?

When we observe the current scenario of Nepal's capital market, investors have shown a high level of optimism, signalled by intense participation for the last few months. Almost all of the stocks have been trading significantly higher than they were before lockdown, regardless of the short-term fluctuations. 

When we look at the current trend of public issues in the market, we see that more than 23-24 lakhs investors have been applying in recent issues. This is a huge number when compared to past data. Even if half of this number applies to the issue of Madhya Bhotekoshi Jaavidhyut Limited (MBJCL), the issue will be oversubscribed. 

Since the "10 kitta rule" still holds true for this IPO, only 8,19,000 lucky applicants will get the 10-unit shares of Madhya Bhotekoshi Jaavidhyut Limited. So, it is advisable to apply only for 10 units.

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