ICRA Nepal has downgraded the credit ratings of Hotel Mystic Mountain Private Limited (MMH), citing largely stagnant revenues, pressure on operating margins, declining occupancy, and rising debt linked to the hotel’s ongoing capacity expansion project.
The rating agency has downgraded the company’s long-term loan rating to [ICRANP] LBB from [ICRANP] LBB+ and its short-term loan rating to [ICRANP] A4 from [ICRANP] A4+. The total rated loan limits remain unchanged at NPR 560 million, comprising long-term loan limits of NPR 525 million and short-term loan limits of NPR 35 million.
Flat Revenue and Pressure on Profit Margins
According to ICRA Nepal, Hotel Mystic Mountain’s revenues remained largely flat over the three years ending mid-July 2025, while operating profit margins continued to face pressure amid increasing competition. The company’s operating income stood at NPR 328 million in FY2025, compared with NPR 330 million in both FY2023 and FY2024.
Its operating profit before interest, tax, depreciation and amortization (OPBITDA) margin also declined to 37.6% in FY2025, from 38.7% in FY2024 and 48% in FY2023. ICRA Nepal noted that the pressure on operating margins has weakened debt-servicing metrics despite the benefit of lower borrowing costs.
Occupancy Falls to 61 Percent
The rating agency also highlighted a decline in the hotel’s occupancy rate, which fell to approximately 61% in FY2026 from around 69% in FY2025. The decline has been attributed to weaker tourist inflows amid ongoing global conflicts and increasing competition from existing and new hotels in the surrounding area.
Revenue per available room (RevPAR) also declined by approximately 8% in FY2026, adding further pressure to the company’s operating performance. ICRA Nepal expects these factors to moderate the company’s coverage metrics over the medium term, particularly as the hotel’s debt burden increases.
Expansion Project Costs Rise 28 Percent
Hotel Mystic Mountain is currently undertaking a major capacity expansion, adding 72 rooms to its existing property. The expansion was initially planned for 66 rooms. The revised project cost has increased to approximately NPR 1.418 billion, compared with NPR 1.110 billion estimated during the previous rating exercise, representing a cost escalation of around 28%.
The cost per room has also increased by approximately 17%, reaching around NPR 15 million per key from about NPR 13 million previously. The cost increase has mainly resulted from additional land acquisition and the construction of extra protection walls and corridors connecting the new blocks with the existing operational block.
Rising Debt Adds Financial Pressure on Hotel Mystic Mountain
The expansion project of Hotel Mystic Mountain is being financed through a debt-to-equity mix of approximately 75:25. However, funding for the additional cost arising from the escalation has yet to be fully tied up. As of June 2026, the company had achieved approximately 38% financial progress against the revised project cost. Civil construction has progressed significantly, while mechanical, electrical and plumbing (MEP) works and interior design activities remain at an early stage.
ICRA Nepal said the Hotel Mystic Mountain’s ability to control further cost escalation and finance the additional requirement, preferably through equity, will remain important for its liquidity position. The company’s debt servicing coverage ratio (DSCR) stood at approximately 1.6 times in FY2025, compared with 1.5 times in FY2024. However, the rating agency expects coverage metrics to moderate as debt increases and operating performance remains under pressure.
Debt Repayments to Begin From October 2026
The Hotel Mystic Mountain is approaching the end of its loan moratorium, with repayments expected to begin from mid-October 2026. ICRA Nepal said the timing creates additional financial pressure, particularly as the expansion project is still under construction and the company has yet to finalize funding for the cost escalation. The ability to complete the project within the revised cost, avoid further unexpected expenses, and stabilize the additional capacity will therefore remain a key factor in the company’s credit profile.
Experienced Promoter and Strategic Location Remain Strengths
Despite the downgrade, ICRA Nepal continues to recognize several strengths supporting the company’s ratings. Hotel Mystic Mountain is located in Nagarkot, a popular tourism destination approximately 30 kilometres east of Kathmandu. The property benefits from its favorable location and established visibility among tourists and customers.
The Hotel Mystic Mountain is owned by Bal Krishna Dhoju, who has more than 20 years of experience in the hospitality industry. His experience and established relationships with industry stakeholders and potential corporate and individual customers have supported the hotel’s business profile. The company operates independently and is not affiliated with any domestic or international hotel chain.
Government Support for Tourism Sector Provides Positive Outlook
ICRA Nepal also noted that government initiatives aimed at strengthening Nepal’s tourism sector could support the company’s long-term demand prospects. Among the measures highlighted are minimum lending requirements for tourism-related projects, interest capitalization during construction, the government’s Visit Nepal Decade 2023–2033 initiative, and other measures introduced to support the sector’s recovery.
The rebound in foreign tourist arrivals to pre-pandemic levels is also viewed positively. Nepal’s geographic position between India and China, along with the potential for increased domestic tourism following the government’s expanded weekend holidays, could further support the hospitality sector.
Competition and Tourism Cyclicality Remain Key Risks
ICRA Nepal has identified the fragmented and cyclical nature of Nepal’s hotel industry as another key challenge for the company. Increasing competition, seasonal demand fluctuations, interest-rate volatility and dependence on tourism expose the hotel to cash-flow uncertainties. External events, including aircraft accidents, natural disasters and prolonged economic downturns, could also affect foreign tourist arrivals and hotel bookings. The company’s limited geographical and segmental diversification further increases its exposure to these risks.
Project Execution and Business Stabilization to Remain Key Monitorables
Going forward, ICRA Nepal will closely monitor Hotel Mystic Mountain’s ability to complete its expansion project on time and within the revised cost, arrange funding for the remaining project requirement, and stabilize the newly added capacity. Improving occupancy and RevPAR will also be critical to offset the higher operating leverage resulting from the expansion. Hotel Mystic Mountain was incorporated in May 2013 and operates a four-star, 72-room property in Nagarkot. It began operations with 33 rooms in July 2017 and gradually expanded its existing facility.
The company is currently adding another 72 rooms and related amenities to its property. ICRA Nepal said the company’s future rating will depend significantly on its ability to manage the increased debt burden, complete the expansion successfully, improve operating performance and strengthen its debt-servicing capacity amid growing competition in Nepal’s hospitality sector.
