Recently, Share market has shown it boom with hydropower companies. They are doing exceptionally well but is it because hydropower companies are performing really well or other external factors are playing major role shadowing the actual conditions of these companies?
The major factor for increase in share market especially hydropower is because of high liquidity in bank which forced bank to decrease interest rate for borrowing.
Due to high liquidity return on bank deposit are significantly lower as compared to earlier periods which had led the rational investor to choose in share market.
The blind race that started after success of Chilime hydropower which reached around Rs. 2700 per share on 2014 but little did the public knew that Chilime was favoured by NEA offering higher price rate for electricity produced by the Chilime because NEA staffers are themselves were investor in the company.
The price NEA has been paying for private companies cover about 17% return on average however no hydropower companies except Chilime and Butwal power company have distributed minimum 17% divided.
Government allowing private hydropower companies to issue IPO without third party credit rating, lack of investment from promoters as committed in offer document, hiding the true cost of project, questionable completion certificate up to certain stages of project even though project has not started at all. These practices are still going on even today when hydropower sector hits high at share market.
High cost due to delay in completion of project or due to lack of investment as promised by the promoter, alternative fund-raising practices like bank loans are major reasons for lack of profit on hydropower companies which eventually leads non-distribution of divided or return to investors.
[we have example of upper Tamakoshi which had initial cost of around 36 billion in 2011 and one of the lucrative investment at the time of issue and now today after 9 years with 4 years delay and expected complete next year with estimated cost around 69 billion and now investors of Tamakoshi are expecting high divided and unaware of double the cost incurred which will eventually eat the investors dividend.