Nabil Bank Limited is preparing to file a fresh lawsuit against China Everbright Bank in China, seeking compensation for legal expenses and interest losses incurred during an earlier legal battle over a counter-guarantee linked to the 37 MW Trishuli 3B Hydropower Project.

Nabil Bank had previously recovered around NPR 1.08 billion from China Everbright Bank after winning a case in China related to the counter-guarantee issued for the project. The recovery followed a prolonged legal dispute involving China Everbright Bank and Chinese construction company Shuifa ANHE Group.

The bank is now preparing a second legal action to recover approximately NPR 450 million spent on legal costs, along with interest losses arising from the prolonged dispute.

The dispute dates back to a contract signed between Trishuli Jalvidyut Company and Shuifa ANHE Group on March 14, 2018, for the construction of the 37 MW Trishuli 3B project. The company was established with a 30% shareholding each from the Nepal Electricity Authority (NEA) and Nepal Telecom.

Shuifa had secured the contract through a bidding process conducted by the NEA. However, the contractor failed to make progress according to the agreed schedule. Rising commodity and construction material prices following the Russia-Ukraine war further increased financial pressure on the Chinese contractor.

The contractor eventually abandoned the project and returned to China, leading to termination of the contract in November/December 2023.

Before the contract was awarded, Nabil Bank had issued a USD 7.45 million counter-guarantee in favour of the Nepal Electricity Authority, backed by China Everbright Bank. After Shuifa failed to fulfil its contractual obligations, the NEA invoked the guarantee and collected the equivalent amount from Nabil Bank.

Nabil then sought reimbursement from China Everbright Bank under the counter-guarantee arrangement. Although China Everbright initially agreed to release the funds, the payment was subsequently challenged after Shuifa filed a case in China's Financial Court and obtained a stay order.

Nabil Bank subsequently pursued the matter through the Chinese legal system and ultimately secured a favourable decision, allowing it to recover the funds from China Everbright.

The recovery has also had a significant impact on Nabil Bank's financial statements. The bank had previously provisioned for the potential loss. After recovering the funds and accounting for taxes and employee-related expenses, around NPR 630 million was added to net profit.

However, the recovery came with substantial legal and related expenses. According to the bank, approximately NPR 450 million was spent on the legal battle, while losses associated with foregone interest have been accounted for separately.

Nabil Bank now intends to seek compensation for these costs from China Everbright Bank, rather than from Shuifa ANHE Group.

Adarsha Bazgain, Deputy Chief Executive Officer of Nabil Bank, said the bank was preparing to initiate the new legal action because the expenses were incurred in the process of recovering funds that ultimately belonged to the bank and its depositors.

The bank is expected to file the new lawsuit in China within the next one to two months, according to Bazgain.

The second lawsuit could determine whether Nabil is able to recover a substantial portion of the legal expenses and interest losses associated with the original dispute. For investors, the case is also significant because any successful recovery could provide an additional financial benefit beyond the NPR 1.08 billion already recovered.

The dispute highlights the complexity of cross-border guarantees, project financing and legal enforcement in large infrastructure projects involving Nepali institutions and foreign contractors.