SATV Kathmandu Oct 14: Khani Khola Hydropower Company Limited (KKHC) is opening a new window of investment opportunity by announcing the public auction of 459,349 units of unsubscribed right shares.
Khani Khola Rights Shares
Starting from October 29 (Kartik 12, 2082), this move is a critical step for the company to complete its capital raising process and is set to attract interest from general investors, institutions, and corporate bodies seeking undervalued assets in the hydropower sector.
This article provides a comprehensive overview of the auction, details of the preceding rights issue, and an in-depth analysis of KKHC’s operational status and financial health, essential information for any potential bidder.
The Auction Details: A Fresh Chance for New Investors
Khani Khola Hydropower is auctioning the remaining shares that were left unclaimed by its existing shareholders during the recent 1:1 rights issue. The sheer volume of nearly half a million shares provides a substantial opportunity for large-scale and institutional participation.
Key Auction Information
Number of Shares: 459,349 units. This figure represents the approximately 9.86% of the total rights shares that were not subscribed by the existing shareholders.
Auction Period: Bidding opens on Kartik 12, 2082 and closes on Kartik 19, 2082.
Minimum Bid Price (Floor Price): The minimum acceptable price for the auction is set at NPR 100 per share, which is the par value. Investors must bid at or above this price.
Minimum Bid Quantity: Interested investors must submit bids for a minimum of 100 shares.
Maximum Bid Quantity: There is no upper limit, allowing investors to bid for the entirety of the 459,349 shares.
Bid Submission Locations: Bids must be submitted to the issue manager, Citizens Capital Limited at Dilli Bazaar, Kathmandu, or at specified branch locations of Citizens Bank International across various cities, including Kumaripati, Thimi, Biratnagar, Birgunj, Surkhet, Janakpur, Pokhara, and Hetauda, among others.
This mechanism of public auction is a standard regulatory practice designed to ensure that the remaining shares are sold transparently and at a market-determined price, thereby broadening the shareholder base and maximizing the capital injection for the company.
The Context of the Auction: Completing the 1:1 Rights Issue
The auction is the final phase of a major capital restructuring effort by KKHC. The company had previously issued a massive 100% rights share (a 1:1 ratio) to its existing shareholders. This issue involved a total of 4,657,143 units of shares, with the intention of doubling the company’s paid-up capital from its previous level of NPR 46.57 Crores to NPR 93.14 Crores. The primary stated objective for raising this capital was to repay outstanding bank loans, signaling a move towards strengthening its balance sheet.
The rights issue opened on Bhadra 3, 2082, and closed on Ashwin 5, 2082, after an extension. The book closure date for eligibility was Ashadh 27, 2082. The fact that 459,349 shares remained unsubscribed, despite the 1:1 ratio, indicates a degree of caution from existing shareholders, which makes a deeper look into the company’s fundamentals crucial for potential auction bidders.
Khani Khola Hydropower: Operational Assets and Capacity
Khani Khola Hydropower Company Limited (KKHC) is an Independent Power Producer (IPP) in Nepal that currently operates two interconnected, run-of-river projects located in the Lalitpur District:
Tungung – Thosne Hydropower Project: This is the larger of the two projects, with an installed capacity of 4.36 MW.
Khani Khola Hydropower Project (Stage II): This project utilizes the tailrace water from the Tungung–Thosne project and has an installed capacity of 2 MW.
The combined installed capacity of these two projects stands at 6.36 MW. Both projects are fully operational, having begun commercial operations in late 2073 BS (around November/December 2016). They are connected to the national grid and operate under a Power Purchase Agreement (PPA) with the Nepal Electricity Authority (NEA), generating an average of 32.27 Gigawatt-hours (GWh) of energy annually.
Financial Health: Challenges and Future Prospects for KKHC
Potential bidders in the auction must assess KKHC’s financial health, which presents a mixed picture of challenges and potential future recovery.
Persistent Financial Challenges
The company’s audited financial results for the fourth quarter of the fiscal year 2081/82 (FY 2024/25) highlight significant pressure on its bottom line:
Net Loss: KKHC reported a persistent net loss for the year, with Q4 showing a net loss of Rs. −34.99 million. This loss reflects the substantial impact of financial expenses, particularly interest costs on its construction and operating loans.
Negative EPS: The annualized Earnings Per Share (EPS) stood at a negative Rs. −3.76 for FY 2081/82 (Q4), continuing the negative EPS trend.
Erosion of Value: The Book Value Per Share has been reported at Rs. 86.51, which is below the face value of Rs. 100. This indicates that the company’s liabilities exceed its current assets less intangible assets, signaling a gradual erosion of shareholder equity.
Market Context: The current market price of KKHC shares (around Rs. 227 as of the recent trading date) is significantly higher than its book value and negative EPS, reflecting the speculative or long-term growth premium often associated with hydropower stocks in Nepal, but also highlighting the intrinsic risk.
The Purpose of the Auction and Investment Outlook
The key driver for the 1:1 right share issue and the subsequent auction is the stated goal of repaying outstanding bank loans. A successful capital raise will be instrumental in two ways:
Debt Reduction: Utilizing the auction proceeds to retire high-interest debt would immediately reduce the company’s financial expenses, which are the main drag on its profitability (reflected in the negative EPS). This is the most crucial step for transitioning the company back to a state of positive net income.
Increased Capital Base: The doubling of the paid-up capital will improve the company’s Debt-to-Equity ratio, strengthening its balance sheet and potentially preparing it for future project development or securing better financing terms.
For auction participants, the bid floor of NPR 100 per share presents a unique entry point. Given that the prevailing market price of the traded share is significantly higher, a successful bid at a low price offers a substantial theoretical discount, provided the bidder believes in the company’s ability to turn its profitability around following the debt repayment.
The auction of Khani Khola Hydropower’s unsubscribed shares is a high-stakes event, offering a strategic investment opportunity tied directly to the company’s capital restructuring plan. While the financial challenges, particularly the negative EPS and the high level of unsubscribed shares, warrant caution, the potential for a significant reduction in debt and a future return to profitability, driven by its existing 6.36 MW capacity, makes the auction a compelling proposition for risk-tolerant investors. The coming weeks will determine how the market values KKHC’s future, as investors place their bids to finalize the company’s capital expansion.
