Controversy Surrounds CARE Ratings Nepal as License Suspension Looms
Sun, Jun 25, 2023 10:12 AM on Latest,
The Securities Board of Nepal (SEBON) has informed CARE Ratings Nepal Limited (CRNL) that the action process is underway based on the explanation it had requested 5 and a half months ago.
During the meeting of the SEBON's Board of Directors (BODs) held on 24th Poush, 2079, an explanation was requested from CARE Ratings Nepal as to why its license should not be suspended. Subsequently, after receiving no response from CARE Ratings, the process of license suspension was initiated due to allegations of providing a credit rating to Ghorahi Cement in a conflict of interest.
Following CARE Ratings Nepal's violation of the Credit Rating Regulations 2068 by allegedly issuing a rating to a company under its main shareholder, Vishal Group, the Board decided to take action against the company on 24th Poush and provided an opportunity to submit an explanation. The board requested an explanation as to why the rating against the Credit Rating Regulations 2068 should not be canceled and why CARE Ratings Nepal's license should not be suspended.
On the same date, the Board asked CARE Ratings Nepal to submit an explanation as to why it should not take the maximum extent of action as per Section 101 (7) of the Securities Act 2063, Section 101. However, even after 5 and a half months of requesting an explanation, the board has been moving forward by accepting the rating given by the company without taking any action.
Although the rating for Ghorahi Cement's IPO would become void, the controversy arose when the board allegedly approved the company's IPO based on the same rating. Subsequently, the board has prepared to take action against CARE Ratings Nepal based on the clarification requested 5 and a half months ago.
On Jestha 30th, the board sent a letter to CARE Ratings Nepal regarding the rating of Ghorahi Cement, requesting a response within 3 days. CARE Ratings has not responded to the letter, and the board has not reached a conclusion regarding Ghorahi's rating.
However, it is understood that SEBON Chairman Ramesh Kumar Hamal has instructed employees to propose action based on the explanation provided 5 and a half months ago to the board of directors.
Chairman of the Board Ramesh was quoted as confirming that he instructed action to be taken against the company before Ashad 15 and submitted to the Board of Directors. He stated, "There was confusion among the employees of the law department regarding whether to prosecute him or not. We have instructed them to provide comments and submit them to the board by June 15. We requested an initial explanation regarding the rating of Ghorahi Cement, and we will reach a decision on what to do within the next 1 to 2 weeks."
If the company's license is suspended by the board, questions have been raised not only about Ghorahi's situation but also about the ratings that were issued after the request for an explanation. The board, which approved the ratings given by the same company without taking any action for 5 and a half months, is now uncertain whether the process of taking action will commence after the issue becomes controversial.
According to the regulations, if it is confirmed through an investigation that a credit rating organization has repeatedly violated the regulations under the Act or the instructions issued by the board, or if the actions of the credit rating organization are against the interests of the investors, the board may demand a written explanation and initiate the action of suspending or revoking the license of such organization. The regulations also state that the board should give an opportunity to the relevant credit rating organization to submit clarifications before suspending or revoking its license.
Based on the rating given by the same company, Ghorahi Cement's IPO issuance has been approved, and shares have been distributed to Nepalis who are employed abroad and the locals of industry-affected areas. As the board has been inactive regarding the disputed issue, it has now prepared to take action based on the explanation provided 5 and a half months ago if the IPO is halted due to news of false application in the IPO.
Niraj Giri, the former executive director of the board, was quoted as questioning why the board approved the rating given by a company that had already been requested to provide an explanation. He emphasized the importance of examining the creditworthiness of the company and its ability to repay loans. Giri was quoted as stating, "The board should either take action after requesting an explanation or approve the rating given by the company only after determining that the explanation is satisfactory.
Ghorahi Cement Industry had completed the allotment of 6,06,350 units IPO shares to Foreign Nepalese Migrants and 77,290 IPO unit shares for project-affected locals of Dang district, both of the issuances were under-subscribed.
Ghorahi Cements had issued 7,54,661 units of IPO shares intended for Nepali migrant workers abroad amounting to 1.90% of the company's paid-up capital. The company had issued 3,97,190 IPO unit shares for project-affected locals of Dang district. The face value of each share was Rs. 100 and an additional premium charge of Rs. 335 was added and premium issuance was priced at Rs. 435 for each unit share for Nepali migrants working abroad. For the locals, the face-value of the share was Rs. 100 each with an added premium of Rs. 300 each, amounting to Rs. 400 per unit share of the company.
The IPO was open for subscription from 19th Baisakh to 2nd Jestha, 2080 for both the Nepali migrants working abroad and the project-affected locals. Later, as the units were undersubscribed until the early closing date, the company had notified that the issue has extended till 17th Jestha for the locals.
The IPO issue for locals had only entertained 19.45 per cent applications for locals while 80.55 per cent units remained unclaimed. Meanwhile, the issue for the Nepali migrants working abroad had witnessed 19.65 % vacant applications of the shares.
Including the remaining shares after all previous allotments and reservations, a total of 69,11,670 units had been floated for the general public on 32nd Jestha, 2080. The early closing date of this issue was on 4th Ashad and despite the issue receiving full subscription, it was extended up to 14th Ashad, 2080.
Later SEBON, suspended all processes of Ghorahi's IPO issuance.
SEBON Halts Ongoing IPO Issuance of Ghorahi Cement Industries; But Why?
Ghorahi Cement Believes IPO Issuance Will Resume After Due Investigation By SEBON
