Investors file complaint against Mission Dev Bank as bank says auction allottees not eligible for bonus share for FY 2072/73

Mission Development Bank Limited (MIDBL) has announced 22% bonus share from the profits it earned in FY 2072/73. This bonus share is to be given on the paid up capital at the end of Asadh 2073. However, accounting for the 100% right share MIDBL had issued from Chaitra 3, 2073 to Baisakh 6, 2074, the bonus share percentage averages out at 11% on its current paid up capital of Rs 38.98 crore. Shareholders who had applied for the 100% right share were allotted the shares on Baisakh 15, 2074. Likewise, the bidders that had applied in the unclaimed right shares auction were also allotted on Jestha 11, 2074. The bank announced Asadh 15, 2074 as the book closure date for its 7^th AGM going to be held tomorrow. In a normal scenario, all shareholders of a company are eligible for dividend of the company if they buy before the book closure date. In this case, all shareholders have been allotted the shares before the book closure date. However, MIDBL says that the auction allottees will not be eligible for the bonus. Mr. Bishnu Pd. Pokhrel, Company Secretary of MIDBL, informed that the bonus share will only be allotted to the shareholders before the right share issue i.e. on the paid up capital at the end of Asadh 2073. “Our bonus share approval process was delayed, so we had to delay the issuance of bonus. This bonus share is being distributed from the profits of FY 2072/73, so it is only being given to shareholders [paid-up capital] till the end of FY 2072/73”, said Mr. Pokhrel. He further added that new shareholders from auction are not eligible for bonus since they were not shareholders in FY 2072/73. An official of Vibor Capital, share registrar of the bank, also further clarified on the issue. “Although we have allotted the right shares and auctioned shares, we have not listed them on NEPSE, nor have we deposited the shares into the demat accounts. So, new shareholders will not get bonus”, said the official. Investors have filed a complaint against the bank at SEBON demanding the bank provide bonus to all shareholders who had shares before the book closure date. How much bonus shares will the shareholders get? If a shareholder had 100 shares before the right share issue, he will get 22 shares (i.e. 22%). However, if he had also applied for the 100% right shares, he will still get 22 shares for a total of 200 existing shares (i.e. 11%). Existing shareholders who already had shares of the bank are not affected by this. However, new shareholders who were allotted in the auction are mainly at a loss since they will not get any bonus shares. MIDBL’s price in NEPSE was first adjusted for 100% right share. This adjustment created a “base price” for the investors to apply for unclaimed right shares in the auction. Subsequently, MIDBL’s price was adjusted for 11% bonus share in NEPSE. Normally, this means that any shareholder who had shares before the book closure date are eligible for 11% bonus. However, since the auction allottees are not eligible for 11% bonus, they will be at a disadvantage because they bid higher in expectation of bonus. This situation has put forth a serious debate: why is the book closure date not being honored? What should the investors base their upcoming investment on if it creates such a situation that they will not be liable for dividends even if they were allotted shares before book closure data? Recent Examples Such situations normally happen when companies have yet to conduct AGMs of the past year. For example, the auction of Laxmi Bank that concluded last Friday. All auction allottees will be eligible for 18.29% bonus share for Laxmi Bank. Similarly, last year, when Citizens Bank issued 55% right share, all right share allottees and the auction allottees of unclaimed right shares were eligible for the 15.80% bonus as they were allotted before the book closure for bonus. Likewise, when Nepal Life Insurance had issued and allotted its 30.96 lakh units FPO, it had yet to conduct its AGM for the FY 2072/73. When it announced book closure date for 25% bonus share for FY 2072/73, FPO shareholders were already allotted. The new shareholders, which did not have any shareholding in FY 2072/73 were also given the said bonus shares for FY 2072/73. 7^th Annual General Meeting tomorrow Mission Development Bank Limited is going to conduct its 7^th Annual General Meeting tomorrow at Amrapali Cottage & Restaurant, Butwal at 11:00 AM. The AGM will be endorsing 22% bonus (on paid up capital till Asadh 2073) and Rs 22.57 lakh cash dividend among other agendas. It has posted net profit of Rs 5.60 crore in the third quarter of the FY 2073/74. Its paid up capital after recently floated 100% right share stands at Rs 38.98 crore. After the issuance of this bonus share, its paid up capital will reach Rs 43.26 crore. As per NRB’s directive for all 1-3 district level development banks to increase their paid up capital to a minimum of Rs 50 crore by the end of FY 2073/74, MIDBL should issue a further capital hike of around Rs 6.74 crore (around 15.60%).