Civil Capital draws Sebon flak for denying to underwrite shares

KATHMANDU, Oct 9: 

The Securities Board of Nepal (Sebon) has sought clarification from Civil Capital Market over its decision to deny underwriting shares of Lotus Investment Finance which remained unsubscribed during a recently launched initial public offering.

The clarification was sought after the Civil Capital, the underwriter for shares of Lotus, wrote a letter to the securities market regulator, requesting that it be allowed to return the money raised from public investors during the IPO. 

“We just want to know the legal pretext used by Civil Capital to make the request. We will come to a conclusion on the case after we get a response from Civil,” a high-ranking Sebon official told Republica on condition of anonymity.

This problem erupted after the IPO launched by Lotus Finance on June 10 was able to raise only Rs 11.31 million, which was 14 percent of the targeted amount of Rs 80 million.

As per the agreement signed between Lotus and Civil, Civil had agreed to purchase 50 percent of the shares worth Rs 40 million in case the IPO is undersubscribed. 

The agreement was signed based on a provision in the Securities Issuance Directive that compels every company launching IPO to underwrite at least 50 percent of the shares.

As per this legal provision, Civil had to fork out Rs 40 million to purchase unsubscribed shares of Lotus. But when it was asked to do so, it denied. 

Instead, it wrote a letter to the Sebon requesting that it be allowed to return Rs 11.31 million raised from the primary market.

“The request was made after promoters of the finance company denied chipping in Rs 28.69 million that would have fallen short even after contributions made by Civil and public investors were factored in,” Bhism Raj Chalise, CEO of Civil Capital, had earlier told Republica.

Simply put, the 80-million-rupee IPO would have been fully subscribed if Rs 11.31 million raised from public, Rs 40 million that was supposed to be injected by Civil and the remaining Rs 28.69 million that should have come from promoters were collected in time. 

Lotus had earlier said its promoters were willing to inject the outstanding amount by mid-July when the company has to meet the regulatory capital requirement of Rs 200 million. Lately, they have agreed to pump in the funds by mid-April.

Even then Civil is denying to play its part and contribute Rs 40 million citing “it´s too late now.”

Senior officials at Sebon, on condition of anonymity, said that Civil is playing foul as it is underwriter´s responsibility to purchase unsubscribed shares.

But Sebon has not been able to take a concrete decision on this particular case as the law does not have a clear-cut provision to address the issue.

Source: Republica