Citizen Mutual Fund II opens from tomorrow; Information you ought to have before making an investment

Company profile

Citizens Mutual Fund-2 (CMF II), is being managed by CBIL Capital Limited and sponsored by Citizens Bank International Limited.

Citizen bank international (CZBIL) came into operation from Baisakh 07, 2064 and been operating as a class A commercial bank in Nepal. The bank currently has its presence all across the nation through its 81 branches, 76 ATM terminals, and 99 branchless banking units.

CBIL Capital came into operation since Bhadra 16, 2073, prior to which it was called National Investment and Capital Market. The company is a subsidiary of CZBIL with proprietorship of 58.6%. Similarly, Employee Provident Fund is the second largest shareholder owning 18%. CBIL capital provides services such as:

1. Issue manager
2. Underwritier
3. Share Registrar
4. Investment management services
5. Financial Consultant
6. Fund Manager
7. Depository participant

CBIL capital is going to be the first merchant bank to issue Initial Public Offering (IPO) to general public as it is soon planning to float IPO worth Rs 3 crore.

About the issue

Citizens Mutual Fund-2 (CMF II), managed by CBIL Capital Limited and sponsored by Citizens Bank International Limited is floating its public issue of 10 crore units mutual fund scheme worth Rs 1 arba from Jestha 9, 2076.

The early closing date of this mutual fund issue is on Jestha 13, 2076; if the issue got over subscription or else this issue can be extended up to Ashad 8, 2076.

The mutual fund will be issuing a total of 10 crore units worth Rs 1 arba at face value of Rs 10 per unit. Securities Board of Nepal (SEBON) had already provided final nod to the public issue.

Interested people must apply for a minimum of 100 units and they can apply for maximum 2 crore units. Interested applicants can apply through ASBA-approved banks from all 77 districts across the country.

Citizens Mutual Fund 2 is the CBIL Capital Limited second mutual fund scheme, and is a 7-years closed-end fund. Under the current mutual fund regulation, 15% units i.e. 1.50 crore units are reserved for fund manager and fund sponsor. Remaining 8.5 crore units will be floated to the general public.

CBIL Capital Limited is a subsidiary of Citizens Bank International Limited licensed by SEBON to provide merchant banking, issue management, corporate advisory and mutual fund services.

CBIL Capital Limited has already issued 1 mutual funds i.e. Citizens Mutual Fund 1 which is a 7 years closed end fund with issue size of Rs 82 crore and its Chaitra end NAV was Rs 10.78, whereas, last week NAV has increased to Rs 11.51.

Currently, there are 13 mutual fund schemes in the market and all are listed in Nepal Stock Exchange.

Dividend Payout

The dividend will be paid out of realized profits in proportion to investments made. The Retained earnings will be re-invested if any.

Supervisors of CMF II

General asset allocation of the proposed scheme's portfolio

Capital structure of CBIL Capital

Promoter shareholders

Board of directors of CBIL Capital

Management team of CBIL Capital

Investment avenues

1. Securities that are registered with SEBON
2. Securities called for public offering
3. Securities that are listed in NEPSE
4. Debentures, Treasury Bills and other instruments of money market issued by Government of Nepal or Government Agencies receiving full guarantee or protection of GoN or NRB
5. Bank deposits
6. Money Market Instruments
7. Other areas as prescribed by SEBON

ICRA Rating of Citizens Bank

ICRA Nepal assigns the rating of [ICRANP-IR] BBB+ (pronounced ICRA NP issuer rating triple B plus) assigned to CZBIL. [ICRANP-IR] BBB+ ratings are considered to be of moderate credit quality. The rated entity carries higher-than-average credit risk. The rating is only an opinion on the general creditworthiness of the rated entity and is not specific to any particular debt instrument. 

Strengths

• Adequate track record
• Improvement in market position through franchise expansion and scale up in operations with improving asset quality indicators.
• Moderation in portfolio growth in recent periods compared to the above-industry growth
• Comfortable capitalization with an experienced and stable management team could support its future growth plans of attaining a moderate pace of growth while maintaining comfortable asset quality indicators.
• Focus on the retail/SME segment has resulted in a higher share of these loans at ~54% as of July 2018 along with moderation in credit concentration risks (top 20 borrower groups accounted for ~21%), which also remain rating positives.

 Weaknesses

• Inferior deposit profile with a lower proportion of low-cost CASA deposits (~27% as of mid-July 2018 vs ~43% for the industry),
• High concentration (top 20 depositors accounted for ~36%)
• High cost of funds (8.26% for FY2018 vs 6.10% for the industry).
• Continued pressure on the bank’s net interest margins, which along with higher capital base has led to moderation in the return on net worth.
• High exposure to relatively vulnerable sectors (including real estate, loan against shares and hire purchase loans) at ~25% as of July 2018 (vs ~14% for the industry)

Uncertain operating environment and liquidity constraints that the banks in Nepal are currently facing which can have impact on their asset quality and profitability.

Source: (https://icranepal.com/releases.php)

ICRA rating of CBIL Capital

ICRA Nepal has reaffirmed the “[ICRANP] AMC Quality 3 (AMC3)” (pronounced ICRA NP asset management company quality three) fund management quality rating (FMQR) assigned to CBIL Capital Limited (CBIL), indicating adequate assurance on the fund management quality.

Strengths

• Ownership and technical support of Citizens Bank International Limited, a Class ‘A’ commercial bank in Nepal (rated [ICRANP-IR] BBB+ for issuer rating).
• Experienced background of the fund’s supervisors
• Satisfactory investor service practices and the processes followed by it

Weaknesses

• Limited track record in the Nepalese capital market as a fund manager with an evolving risk management framework in respect to fund management.
• High volatility in the market index in recent periods; this could be partly attributed to tightening liquidity in banking, increase in listed shares over last two years and lack of large institutional investors/market makers.
• Unavailability of hedging tools for investment in the market, evolving nature of the mutual fund industry and the low awareness among retail investors about mutual funds.
• High staff turnover at key functions witnessed by CBIL in the last 12-18 months also accentuate rating concerns.

Source: (https://icranepal.com/releases.php)

Financial performance of Citizens Bank

Financial performance of CBIL Capital

Performance of Citizens Mutual Fund I

Citizen Mutual Fund-1 (CMF1) a 7-year closed-end mutual fund scheme that started from Falgun 20, 2074. The performance of CMF I so far is given below:

Projected performance of CMF II on major indicators

 Source: Prospectus and ICRA Nepal rating report