Chapter 17 · Debt Analysis
Reading debt in Nepali companies
Banks are different, hydropower is different, and the ordinary rules apply to almost nothing on NEPSE.
32 of 66 · 9 min
| Sector | Judge debt by | Why |
|---|---|---|
| Commercial and development banks | Capital adequacy ratio, NPL ratio | Deposits are liabilities by design |
| Microfinance | Capital adequacy, portfolio quality | Same, with a riskier book |
| Hydropower | Net debt to EBITDA once generating, debt service coverage | Construction is debt-funded by nature |
| Insurance | Solvency ratio | Liabilities are future claims, not borrowings |
| Manufacturing, hotels, trading | Ordinary D/E and interest coverage | The normal rules apply here |
Hydropower specifically
A hydropower company under construction has heavy debt, no revenue and negative cash flow. Every ordinary ratio says it is failing. It is not — it is being built. The questions that matter are whether construction is on schedule, whether the power purchase agreement is signed, and whether financing covers completion.
Once generating, it flips: revenue becomes fairly predictable, and the whole question becomes whether cash flow comfortably services the debt taken on to build it.
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