All you need know about promoter share conversion

ShareSansar, April 21:

Converting promoter shares to ordinary ones will influence of the price of shares for ordinary investors. In that light it is important to keep a tab on what is the latest status of the structure of promoter and ordinary shares of these banks.

If we go through the ratio of promoter and ordinary shares of all the 30 commercial banks of the country, we come to realize that many of them are yet to convert thousands of their promoter shares to ordinary ones. The fear of promoter shares looms so large in the market that the growth of banking index remains stunted for months despite the bull over the months.

After a thorough investigation into the status of promoter-public share structure of each of the commercial banks, ShareSansar also talked to the bank officials about their plan regarding promoter share conversion to bring you the latest information in this regard.

A very encouraging thing has emerged from this close scrutiny of the exact status of promoter-public share ratio and other factors associated with the share structure of the commercial banks:  The investors can heave a sigh of relief since not many of them are as dicey as they may appear.

The table below lists the latest status of promoter and ordinary share holding in each of the 30 commercial banks. These banks have been color-coded for the easy understanding of the banks. The banks that have fallen in red terrain might be risky for the investors in terms of promoter share conversion, while those in yellow terrain are not so risky and those which have fallen in green terrain are hardly risky or virtually risk free.

The table also includes very important remarks about these banks vis-à-vis their share structures.

As the table suggests, since Nepal Credit and Commerce Bank and Nepal Bangladesh Bank had got approval from the SEBON for conversion of the promoter shares to maintain the ratio of 51:49 for the promoter and ordinary shares some years back, scrip of these banks should not be a matter of much concern for the investors.

Similarly, NIC Asia, NMB, Kumari, Siddhartha, Sanima and Citizens Bank have also got the approval to convert 19 percent of the promoter shares into ordinary ones.

The then NIC Bank had got the approval on May 2 last year while the then Bank of Asia got it on May 12. Sanima Bank also received the regulator’s nod for the conversion on the same day.

SEBON had endorsed the plan of Kumari, Siddhartha and NMB Bank to convert their 19 percent of the promoter shares into ordinary on July 15 last year.

Since these banks received the approval months ago, we know at least that they have either started off loading the promoter shares in the market or are about to do so.

Similarly, Citizens Bank got the approval from the regulator only on April 4 this year, and has just converted 19 percent of the promoter shares to ordinary ones.

What about the remaining 22 commercial banks?

Among them one of them –Bank of Kathmandu — already has less than 42 percent promoter holding.

The banks that are yet to convert promoter shares to ordinary ones include three state-own banks – Nepal Bank Limited, Rastriya Banijya Bank and Agricultural Development Bank Limited.

Since RBB has not floated public shares -- and is completely owned by the Government of Nepa, we do not have to bother about its scrip.  NBL, too, should not be of much concern in that it has already converted 61.4 percent of the promoter shares to ordinary.

Similarly, ADBL, which has already reached 51:49 promoter-public share ratio, is also looking for a strategic partner to handover 30 of percent of the promoter holding of the government to its strategic partner.  

Of the remaining 18 banks, four of them -- Nabil, Everest, SBI, and Standard Chartered -- are joint ventures. Hence promoter share conversion may not a big issue here.

That brings us to 14 banks that are yet to convert the promoter share holding.

But again four of the remaining 14 banks are new ones -- Janata, Civil, Mega and Century -- and may not have big impact by promoter share conversion. A commercial bank must be in operation for at least five years before they can convert the promoter share into the ordinary ones.

It may still be noted that among them Civil Bank can convert up to 11 percent of its scrips to ordinary shares and Century Bank only 3 percent while the rest of two can convert up to 19 percent.

This narrows down our focus to 10 banks that are ‘dicey’ with regards to the conversion of the promoter shares to ordinary ones.

Here NIBL tops the list of commercial banks with the highest percentage of promoter shareholding as it can convert at least 29 percent of its promoter shares to ordinary.

This can have a huge bearing on the ordinary scrip of the bank also because it is one of the leading commercial banks with the largest client base, and the highest number of shareholders.

Since NIBL does not have foreign promoter holding, it is very likely to convert promoter shares to ordinary – and not issue FPO as some may be expecting, according to highly placed sources in the bank.

That leaves us with nine banks – Sunrise, Prime, Grand, Laxmi, Lumbini, Machhapuchhre, Global IME, Himalayan and Kist.

Sunrise Bank, Grand Bank, Prime Commercial Bank are expected to convert at least 19 percent of their promoter shares to ordinary scrips while Lumbini Bank can convert up to 15 percent of the promoter shares to ordinary shares and Laxmi Bank can convert up to 14 percent. But, it may be noted that CIT holds 9.02 percent promoter stake, and it is unlikely to off load the shares. This means that less than 5 percent of the promoter shares of Laxmi Bank are likely to be converted to ordinary one.

Sunrise Bank’s AGM on May 4 decided to covert 19 percent of the promoter shares to ordinary.  Likewise, Grand’s AGM on March 21 decided to convert 19 percent of the existing 70 percent promoter shares to ordinary scrip. It can be approved anytime by the regulator.

However, Global IME’s AGM (before the merger) on January 3, Prime Bank’s AGM on January 10, Lumbini’s AGM also on January 10, Machhapuchhre’s AGM on January 13, Himalayan Bank’s AGM on March 21, and Laxmi’s AGM on March 27 have not taken any decision on promoter share conversion.  

The crisis-ridden Kist, which is vying for a merger with Prabhu Bikash Bank, has not held its AGM since October 2012, nor has it announced any plan to off load 9 percent of promoter shares to ordinary ones.