Companies fear to float primary shares
KATHMANDU, NOV 28:
The current dismal performance of the secondary market has deterred the banks and financial institutions that are supposed to float 279 million unit shares worth Rs 2.79 million within next month.
The thirteen development banks and five finance companies whose deadline for public issue is up by the end of 2011 seem to be uninterested to float shares to the public.
More than 360 million unit shares are getting ready to debut within next two years in the capital market that is already heaving under the burden of existing number of shares.
There are five commercial banks, 32 development banks and eight finance companies that need to issue 30 per cent of the paid up capital to the public as ordinary shares within two years as per the regulation.
If these companies issue shares to the public, the capital market will have to bear additional shares worth Rs 3.6 billion within next two years.
According to Nepal Rastra Bank (NRB) regulation, the licensed banks and financial institution shall have to complete the sale of shares allotted for general public within a maximum period of two years of coming into operation.
Some 13 class ‘B’ and four class ‘C’ financial institutions have already crossed the deadline for public issue.
“The additional shares will put unprecedented pressure on the market that is already being bugged with the oversupply of shares,” said director of Securities Board of Nepal (Sebon) Niraj Giri.
In January 2010, NRB had threatened to scrap the licence of 15 financial institutions that have been delaying to go public. Of which three still need to float their primary issue. The NRB had introduced the mandatory provision for public issue in order to increase more public participation in the decision making of financial institutions that mobilise public money.
“If the financial institutions do not go public within prescribed years, their facilities get constricted such as can not open more branches or distribute bonus for start,” pointed out spokesperson for NRB Bhaskar Mani Gyanwali.
“NRB will take stringent measure to coax the financial institutions for public issue if it deems right,” he added.
The prudential measure of banking regulator has backfired in the capital market. The overwhelming presence of 161 financial institutions among 214 listed companies has reduced stock market into trading floor for financial institutions’ shares -without any chance of diversifying portfolio. The five-year Capital Market Master Plan has also pointed out the overwhelming presence of financial sector and sparse presence of real sector companies as the reason for sluggish performance of the capital market. It has specifically asked to find a way to do away with the compulsion for financial institutions to go public.
However, the entry of mutual funds in the near future can be hoped to balance the oversupply in the coming days.
“The mutual funds along with Central Depository
System might propel the trading volume and transactions,” said Giri.
Meanwhile, the primary market has seemed to have completely cooled off due to turbulent times in secondary market. “There is chances of issues not getting subscribed making the issuers hesitant,” he added.
Sebon has not received any application from new companies seeking to issue shares to public in the first quarter of the current fiscal year. In the last fiscal year’s corresponding period, Sebon had granted approval for Initial Public Offering (IPOs) of two development banks, one finance company and one Hydropower Company amounting to Rs 370 million.
