Citizens Bank FPO opens today; Results point to oversubscription

~Rishab Agrawal

Synopsis of the Issue

Name of the organization: Citizens Bank International Limited

No. of Shares being issued: 4,63,826 units of ordinary shares

Amount to be collected: Rs.9,27,65,200

Issue Manager: Global IME Capital Limited

Citizens Bank International Limited (CZBIL) is issuing 4,63,826 unit shares as FPO to the general public at the rate of Rs.200 per share (Including Rs.100 as premium) from 15^th to 18^th Shrawan, 2075. In case this issue remains undersubscribed in the given time period, the closing date of the issue will be increased till 14^th Bhadra, 2075.

Interested applicants can apply for a minimum of 50 units and maximum of 2,300 unit of shares. Applications can be placed through any of the financial institutions providing C-ASBA facilities. ICRA Nepal has assigned Grade 3 rating to the FPO issuance indicating Average Fundamentals. Global IME Capital is the issue manager.

Company Introduction

Established on April 20, 2007 (2064/01/07) as 20th commercial bank of the nation, “Citizens Bank International Limited”, is promoted by eminent personalities, business and industrial houses and reputed individual having high social standing and has been managed by a team of experienced bankers and professionals. Citizens Bank International Limited has been established as a reliable and trustworthy partner for all financial solutions. Institutionalized by a highly professional and experienced team, they have gained credibility in banking sector through quality financial service.

The bank has a paid up capital of Rs.8.03 arba with 8,03,32,364 units as listed shares. After the issue these figures will increase to Rs.8.07 arba and 8,07,96,190 units respectively. The bank’s shareholder ratio will be maintained at 51:49.

The bank’s last traded price (LTP) stands at Rs.229 per share as of 30/07/2018.

Composition of Board of Directors

The board of directors will consist a total of seven members. Their composition is as follows:

Overview

Citizens Bank International has already met the minimum paid up capital requirement as per the directions of NRB. Moreover, this offering can be looked at as a small offering as the number of units offered is not so big looking at the paid up capital of the bank and the issue price doesn’t vary much from the LTP. Keeping these factors in mind, the bank also enjoys the advantage of strong financial management and attractive quarterly figures.

The bank had recently posted a Net Profit of Rs.1.40 arba for the fourth quarter of FY 2074/75 as compared to Net Profit of Rs.1.08 arba posted on the same quarter of previous year 2073/74. These figures can attract a good number of investors to subscribe for the FPO.

SWOT Analysis

Strength

• Adequate track record with gradually improving market positioning aided by healthy pace of growth.
• Diversified franchise (78 branches), experienced management team and adequate capitalization is likely to support incremental growth over the medium term.
• Ability of the bank to maintain comfortable assets quality indicators despite acquisition of weak financial institutions.
• Increasing share of retail/SME loans in bank’s portfolio which has gradually reduced credit concentration risks.

Weakness

• Declining net interest margins amid shortage of lendable funds leading to swift spike in cost of deposits for the banking sector in last 12-18 months.
• Significant equity raised in last two years could impact the profitability indicators over the medium term.
• Exposure of the bank to risker segments like real estate sector and loan against shares also remain relatively higher which along with portfolio growth in low interest rate regime could witness stress in increasing interest rate scenario.
• Bank’s inferior deposits profile with lower proportion of low cost current and savings accounts (CASA). This has led to high cost of deposits among peers weakening its competitive positioning to some extent.

Opportunity

• High exposure to riskier segments and reduction in low yielding corporate loans has been supporting better yields among peers.
• The bank’s ability to achieve the growth targets along with commensurate risk control measures would have a key bearing over its financial profile.

Threat

• Higher growth during the low interest rate regime could impair the repayment ability of borrowers in current scenario of upward movement of interest rates.
• Due to higher growth in advances and consequent reliance on large depositors, bank has not been able to improve share of low cost CASA deposits.
• Deposit concentration on top 20 depositors also remains high as of mid-Apr-18 and hence remains a concern.

Capital Plan

The promoters of the bank are holding 51% of the total shares while 49% of shares are held by the public. After the FPO, the issued share capital of the bank will be Rs.8.07 arba.

From the graph we can see that before FY 2073/74 the capital of the bank was only Rs.4.40 arba after which it increased its capital to Rs.8.03 arba following the regulation of NRB. Also, after the coming FPO, the bank doesn’t plan to increase its paid up capital in the coming years.

Net Profit

The prospectus also gives a look on past and projected net profits of the bank. Plotting these figures on a line graph, they give the following view:

From the above graph we can clearly look at the banks consistent growth in the past and its plans to follow similar consistency in the future.

EPS

The Earnings per Share of the bank can also be compared to have a precise picture about the performance of the bank

The graph shows constant increase in the EPS till the year 2072/73 after which the figure drastically fell from 24.55 to 13.47 per share. The main reason for this fall is NRB’s regulation of minimum paid up capital for commercial banks. Despite the fall we can see consistent increase in the EPS after FY 2073/74 which also shows Citizen Bank’s efforts to repair this figure after the fall.

Net Worth per Share

The projected net worth per share is expected to increase in the future ensuring value appreciation of investment for shareholders in terms of price of the share. This will add to the interest of investors who wish to apply for a stake of the bank in the coming FPO.

Dividend Payout

The investors can expect returns in terms of cash dividend and value appreciation for the coming years as the bank has no plans to increase the paid up capital any further. This also means that the investors might not get any bonus shares from the bank in the coming years. This may affect the decision of investors who plan to hold stakes of the bank as a long term investment.

Conclusion

The number of shares issued by the bank is very nominal (4,63,826 units) and looking at the trend of the bank, it can easily attract at least 1 lakh applicants to apply for the FPO. This will result in oversubscription of the shares. It is recommended that an investor apply for minimum 50 units of shares locking an amount of Rs.10,000 which will ensure allotment of at least 10 units, amounting to minimum investment of Rs.2,000 only.