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Why did Nepal Grameen Bikas Bank propose FPO without premium price?

- ShareSansar, April 5, 2017  on Exclusive , Featured , FPO News , Latest , Stock Market
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Nepal Grameen Bikas Bank Limited (NGBBL) has proposed Further Public Offering (FPO) of 9,75,000 units shares at a price of Rs 100 per share to be floated to the general public. It will not charge any premium to the share price and the shares will be issued at the par value of Rs 100. This has created confusion among many investors as to why NGBBL did not attach any premium to this FPO.

Why is NGBBL issuing further shares?

Nepal Grameen Bikas Bank Limited (NGBBL) is a national-level microfinance development bank formed by the merger of 5 microfinance companies in 2014: Purwanchal Grameen Bikas Bank, Madhyamanchal Grameen Bikas Bank, Paschimanchal Grameen Bikas Bank, Madhya Paschimanchal Grameen Bikas Bank and Sudur Paschimanchal Grameen Bikas Bank Limited.

Its current paid up capital stands at Rs 55.75 crore. Government of Nepal is a major promoter with 35.44% shareholding. Other major promoters include Nepal Rastra Bank and major commercial banks like Nepal Bank, Rastriya Banijya Bank, Himalayan Bank, Nepal Bangladesh Bank, Standard Chartered Bank and Bank of Kathmandu Lumbini. Currently, its promoter shareholding stands at 82.13%. The general public shareholding is only around 17.87%.

Nepal Rastra Bank requires at least 30% shares to be set aside for the general public. So, to dilute its promoter shareholding and increase its public shareholding, Nepal Grameen Bikas Bank is issuing further shares to the general public.

After the FPO of 9,75,000 units shares, its promoter shareholding will be reduced to exactly 69.908% and public shareholding will be maintained at 30.092%.

Why no premium to the share price?

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To issue FPO at a premium price, the company has to meet several criteria set by SEBON:

  • Out of the last 5 years in operation, the company should be in profit for the last two years and should have positive reserve fund (net worth per share should not be less than par value of share)
  • Issuance of FPO should be endorsed by its AGM
  • Calculation of premium price should be calculated as per given instructions

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Nepal Grameen Bikas Bank has not been in operation for the last 5 years. Although it has posted positive net profit for the last 2 years that it has been in operation, it had a negative reserve of Rs 23.96 crore in the FY 2071/72. Thus, it could not meet the first criteria.

Nepal Grameen Bikas Bank started to generate profit and post positive net worth from this year only. So, as per the several critiera, it cannot issue FPO at a premium price and should issue further shares to the general public at par value only i.e. for Rs 100 per share.

NGBBL earned net profit of Rs 18.03 crore in the second quarter of the ongoing fiscal year 2073/74, up 51.64% from last year. As of Q2, its annualized EPS stands at Rs 64.68 with a net worth of Rs 134.50 per share.

Its last traded price stood at Rs 920 as of yesterday (April 4, 2017).  For a company with this market price, this upcoming FPO can be a good opportunity to grab shares at its IPO value.

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