Chilime Hydropower Company Limited (NEPSE: CHCL) — Investment Report

Executive Summary

Chilime Hydropower Company Limited (NEPSE: CHCL) owns and operates a 22.1 MW run-of-river hydropower plant in Rasuwa district, commissioned in 2003, selling its output in bulk to the Nepal Electricity Authority (NEA), which also holds a 51% controlling stake in the company. CHCL additionally holds stakes, ranging from roughly 33% to 74%, in a cluster of larger hydropower projects developed in the same river corridor — Sanjen, Rasuwagadhi and Madhya Bhotekoshi, three of which are themselves listed on NEPSE. The analytical core of this report concerns three structural facts: CHCL's power purchase tariff has been fixed at NPR 8.17 per unit for six consecutive years with no disclosed escalation clause; its generation licence expires in 2047 with no disclosed compensation at handover; and the company has provided a corporate guarantee, several multiples of its own equity, in support of borrowings at its affiliated hydropower projects. In late August 2026, a major flood event struck the Bhotekoshi river corridor where several of these projects are located, adding a near-term operational question to a company whose underlying economics were already defined by a frozen tariff and a finite licence clock.

Business Overview

Chilime Hydropower Company Limited (the filings alternate between "CJCL" and "CHPL," with NEPSE ticker CHCL) owns a 22.1 MW run-of-river plant in Rasuwa district, 133 kilometers north of Kathmandu, which was commissioned on 25 August 2003 and produces approximately 150 gigawatt-hours (GWh) a year, sold under a power purchase agreement to NEA (Source: CHCL Annual Report FY2081/82, Note 1 General Information — Primary). NEA holds a majority 51% stake in CHCL, with the remaining 49% held by the general public, including 10% reserved for project-affected local communities.

CHCL's generation licence runs for 50 years from 10 August 1997 to mid-July 2047, under a Build-Own-Operate-Transfer (BOOT) structure under which the entire generation unit transfers to the Government of Nepal at licence expiry with no compensation disclosed in any of the five annual reports examined (Source: CHCL Annual Report FY2081/82, Notes 1.1.3 and 1.1.6 — Primary). The power purchase agreement rate has been fixed at NPR 8.17 per unit for regular energy and NPR 4.08 per unit for excess energy for six consecutive fiscal years, with no escalation clause disclosed in any annual report reviewed. For context, the standard Nepali run-of-river power purchase rate for projects of similar vintage is approximately NPR 4.80 (wet season) to NPR 8.40 (dry season) with periodic escalation — meaning CHCL's flat rate is roughly 36% above the standard blended rate, but without the inflation protection that rate's escalation clause provides.

CHCL also holds equity stakes in a cluster of related hydropower projects in the same river system: Chilime Engineering & Services (100%, a consultancy subsidiary), Chilime-Seti (74.42%, an 87 MW project in pre-construction), Sanjen Jalavidyut (39.36%, 57.3 MW, reclassified during FY2081/82 from subsidiary to associate), Rasuwagadhi (32.79%, 111 MW, also reclassified to associate the same year) and Madhya Bhotekoshi (37%, 102 MW). Three of these — Sanjen, Rasuwagadhi and Madhya Bhotekoshi — are themselves listed on NEPSE, meaning a portion of CHCL's value is a daily-marked claim on other listed companies rather than solely on its own 22.1 MW plant.

Financial Performance

All figures NPR, standalone company basis, audited (Source: CHCL audited annual reports FY2077/78–FY2081/82 — Primary).

Revenue has been essentially flat over five years (a compound annual decline of roughly 0.05%), because both the fixed tariff and the plant's contractually deemed energy level are unchanged. Despite net profit margins consistently above 57%, both earnings per share and net asset value per share have declined in every year of the five-year window shown — a result of CHCL's policy of issuing bonus shares every year, which divides the same, largely fixed, cash flow across a growing share count. Delivered energy to NEA has fallen for four consecutive years, from 163.9 GWh to 146.8 GWh, and plant availability has fallen for three consecutive years to 95.09%, both modest trends that pre-date the August 2026 flood discussed below.

Quarterly Snapshot

CHCL's most recently available quarterly disclosure as of this report is its third-quarter (unaudited) FY2082/83 filing, published 30 April 2026; the company's Q4/full-year FY2082/83 report, covering a fiscal year that ended 16 July 2026 — entirely before the August 2026 flood — had not been filed as of the preparation of this report, a filing delay of roughly ten weeks beyond the comparable prior-year timeline (Source: Company notice board, chilime.com.np — Primary). Limited quarterly data is reliably available for FY2082/83 due to a transcription-quality constraint on the company's earlier filings; the company's balance sheet as at mid-October 2025 showed total assets of approximately NPR 12.14 billion and total equity of approximately NPR 11.63 billion, broadly consistent with the audited FY2081/82 year-end position.

Market Position

CHCL does not compete for customers in a conventional sense — it has a single buyer in NEA, a fixed price, and a licence with a defined end date. What distinguishes it from peers is primarily tariff vintage and per-megawatt economics.

CHCL earns roughly 2.2 times a comparable peer's revenue per megawatt and roughly 2.8 times its profit per megawatt — a difference attributable almost entirely to CHCL's legacy power purchase agreement, negotiated in 1997 when CHCL functioned as an NEA development vehicle rather than as an arm's-length independent power producer, rather than to any operating or cost advantage. On conventional market multiples — price-to-earnings and price-to-book — CHCL has in fact traded at a discount to some of its listed hydropower peers, reflecting that any bearish case for CHCL rests on absolute valuation relative to the underlying asset's cash flows, not on relative pricing within the sector.

A significant share of CHCL's own value is a claim on three NEPSE-listed affiliated companies — Sanjen, Rasuwagadhi and Madhya Bhotekoshi — whose own market prices move independently of CHCL's. Nepal's hydropower sector as a whole experienced a significant flood event in the Trishuli/Bhotekoshi river corridor in late August 2026, which Nepal's National Planning Commission's rapid damage assessment, published 12 September 2026, estimated caused approximately NPR 151.4 billion of physical damage across 13 hydropower and 5 solar projects, with no project-by-project breakdown published in that assessment (Source: NDRRMA/National Planning Commission Rapid Damage & Needs Assessment, 12 September 2026, as reported by Ratopati English and OnlineKhabar — Secondary).

Regulatory and Macro Context

CHCL's generation licence, issued for 50 years from 10 August 1997, runs to mid-July 2047 under a Build-Own-Operate-Transfer structure, with no compensation disclosed for the state transfer at that date — meaning CHCL's 22.1 MW plant is a finite, roughly 21-year remaining asset rather than a perpetual one from the date of this report. CHCL's power purchase agreement document itself is not publicly available in the sources reviewed, so whether the NPR 8.17 tariff is contractually permanent, subject to periodic review, or renegotiable at any point before licence expiry could not be independently confirmed.

CHCL's auditor has disclosed, as an "Other Matters" item, that the company has not registered for Value-Added Tax on certain intercompany leasing transactions that the auditor believes fall within the scope of Nepal's VAT Act 2052, with no provision or quantified exposure recorded. The auditor has separately disclosed a land dispute, arising from a Rasuwa District Administration Office stay order over a headworks access road, that the company "has not undertaken any corrective measures" to resolve despite repeated landowner appeals, again with no quantified provision. A recurring Key Audit Matter in the company's audited financial statements, present in multiple years, notes that the company's accounting software permits backdated entries and that the company has not conducted an in-house system audit — a disclosed internal-control observation rather than a finding of any specific irregularity.

Governance and Capital Allocation

The guarantee. CHCL has provided a corporate guarantee to Nepal's Employees Provident Fund (EPF) in support of borrowings at its three hydropower affiliates — Sanjen, Rasuwagadhi and Madhya Bhotekoshi — with an outstanding guaranteed balance at FY2081/82 year-end of NPR 41,339,974,357, or roughly 3.6 times CHCL's own total equity (Source: CHCL Annual Report FY2081/82, Note 25 — Primary). The guaranteed balance grew by approximately NPR 2.05 billion within the year, driven by capitalized interest exceeding principal repayment. CHCL's own power-plant property, plant and equipment, with a carrying value of NPR 2,154,625,392, is pledged as collateral against these guarantees. No guarantee fee paid to CHCL is disclosed in any year reviewed.

A board-level reclassification. During FY2081/82, Sanjen and Rasuwagadhi were reclassified in CHCL's accounts from consolidated subsidiaries to equity-method associates, following a change in the composition of their boards of directors, with no change in CHCL's underlying shareholding and no consideration received for the change. The accounting effect removed approximately NPR 31.8 billion of assets and NPR 24.6 billion of borrowings from CHCL's consolidated financial statements, even though the NPR 41.3 billion guarantee secured against CHCL's own plant remained in place. The result is that CHCL's consolidated balance sheet now presents as debt-free, while the company's economic exposure to that debt, through the guarantee, did not change.

Related-party transactions and board. CHCL's disclosed related-party transactions include ordinary lending and interest arrangements with its three hydropower affiliates, and total board remuneration across all directors was modest, at approximately NPR 2.2 million for FY2081/82 — there is no evidence in the disclosed notes of promoter-level self-dealing. CHCL's auditor issued a qualified opinion on the Group's consolidated financial statements in at least three of the five years reviewed, including FY2081/82, where the stated reason was an inability to obtain sufficient audit evidence on the carrying value of CHCL's investment in Rasuwagadhi, because that associate's own audit had not been completed at the time of CHCL's audit report.

Capital allocation. CHCL has issued bonus shares in every one of the five years examined, capitalizing approximately NPR 3.07 billion of retained earnings into additional share capital over that period, while cash dividends paid fell from NPR 570,976,294 (FY2077/78) to NPR 159,679,944 (FY2081/82), a 72% decline. Over the same five years, cumulative retained net profit of approximately NPR 1.33 billion coincided with net asset value per share falling 18.8% and earnings per share falling 26.9% — a result driven substantially by the company lending a growing portion of that retained capital to its three hydropower affiliates, whose combined equity-method result in FY2081/82 was a loss of approximately NPR 279.5 million.

Key Risks

The licence is finite, and the tariff is frozen. CHCL's generation licence has roughly 21 years remaining and transfers to the state with no disclosed compensation. Its power purchase rate has not moved in six years with no escalation clause disclosed, meaning real revenue effectively declines each year with inflation while costs continue to rise, a dynamic the company's own five-year financial record already reflects.

The guarantee is a substantial contingent exposure concentrated on CHCL's own plant. The NPR 41.3 billion EPF guarantee, secured by CHCL's powerhouse, is roughly 3.6 times CHCL's equity and growing on capitalized interest; CHCL's liquid resources are a small fraction of that figure, meaning any need for CHCL to fund interest or principal shortfalls at its guaranteed affiliates would represent a materially disproportionate claim on CHCL's own balance sheet.

The August 2026 flood's financial impact on CHCL and its affiliates is not yet quantified. As of this report, CHCL had disclosed casualties and rescue logistics related to the flood but had not disclosed a damage estimate, an outage duration, an insurance position, or a restoration timeline, and the company's pre-flood Q4/full-year FY2082/83 financial report remained unfiled roughly ten weeks after it was due. A comparable listed Nepali hydropower peer that experienced a separate flood event on a different river in the same monsoon season disclosed a roughly four-and-a-half month outage and a repair cost of approximately NPR 240 million for its 29 MW plant — offered here as an illustrative, not predictive, reference point given the absence of CHCL-specific disclosure.

Valuation Context

At a reference price of NPR 358.2 (23 September 2026), CHCL's market capitalization implied a value for its directly-owned 22.1 MW plant — after subtracting the market value of its three listed affiliate stakes, loans to those affiliates, unlisted subsidiaries at cost, and net financial assets — of approximately NPR 16.8 billion, or roughly NPR 760 million per megawatt. A finite-life discounted cash flow analysis of the plant over its remaining 21 licence years, using delivered revenue and cost trends and without assuming any additional flood-related disruption, produces an estimated plant value in the range of roughly NPR 3.4–5.8 billion depending on discount rate and maintenance capital expenditure assumptions — substantially below the roughly NPR 16.8 billion the market appeared to be assigning to the plant on a residual basis.

Scenario-based fair-value estimates for CHCL as a whole (each labeled Estimate, incorporating both the plant and the marked value of its listed affiliate stakes) span a bear-case estimate near NPR 66, reflecting an extended flood-related outage, meaningful write-downs across the affiliate stakes, and a material guarantee-related cost; a base-case estimate near NPR 166, reflecting a moderate flood-related outage on the order of several months and the affiliate stakes marked at a discount to their own NEPSE prices; and a bull-case estimate near NPR 228, reflecting a shorter outage, full recovery of amounts lent to affiliates, and the affiliate stakes valued at their full market prices. A separate peer-relative method — comparing CHCL's own operating-plant valuation per megawatt against a comparable peer holding company on a like-for-like, stakes-excluded basis — produces a materially higher estimate near NPR 319, illustrating that CHCL screens as reasonably priced relative to sector peers even though its absolute cash-flow-based valuation appears considerably more conservative; this divergence between relative and absolute valuation methods is, in the report's assessment, a feature of Nepal's broader listed hydropower sector rather than a fact specific to CHCL alone.

What We're Watching

CHCL's Q1 FY2083/84 quarterly filing, expected around mid-November 2026, which should be the first disclosure to carry a quantified damage figure, an outage or restoration timeline, and an insurance position for the August 2026 flood.

The still-overdue Q4/full-year FY2082/83 report, covering a fiscal year entirely before the flood, whose continuing delay is itself informative about the company's current disclosure posture.

The trajectory of the NPR 41.3 billion EPF guarantee balance, and specifically whether it continues to grow on capitalized interest or whether a restructuring or standstill arrangement is disclosed for the two affiliated projects — Rasuwagadhi and Sanjen — located in the flood's path.

References

1. Chilime Hydropower Company Limited, Audited Annual Report FY2081/82 — accessible via chilime.com.np and SEBON filings — Primary.
2. Chilime Hydropower Company Limited, Audited Annual Reports FY2077/78 through FY2080/81 — accessible via chilime.com.np and SEBON filings — Primary.
3. Chilime Hydropower Company Limited, Third Quarterly Report (unaudited) FY2082/83, published 30 April 2026, and company notice board (quarterly-report filing status) — chilime.com.np — Primary.
4. Chilime Hydropower Company Limited, company notices on the August 2026 flood and rescue operations — chilime.com.np/en/notice-board — Primary.
5. Chilime Hydropower Company Limited, sister-companies and group-structure disclosure — chilime.com.np/en/sister-companies — Primary (company self-reported).
6. NDRRMA / National Planning Commission, Rapid Damage and Needs Assessment, published 12 September 2026, as reported by Ratopati English and OnlineKhabar — Secondary.
7. Kathmandu Post, "Hundreds feared trapped in hydropower tunnels after Bhotekoshi flood," 29 August 2026 — kathmandupost.com — Secondary.
8. A comparable listed Nepali run-of-river hydropower company's audited financial filings, used for the illustrative flood-outage reference point — accessible via SEBON — Primary.
9. NEPSE, closing price data for CHCL and its listed affiliates, 23 September 2026 — nepalstock.com.np — Secondary.