ICRA Nepal assigns grade 3 to upcoming 50% right issue of First Microfinance

ICRA Nepal has assigned an “[ICRANP] IPO Grade 3”, indicating average fundamentals to the proposed rights issue amounting Rs 13.22 crore to First Microfinance Development Bank Limited (FMDBL). The process to issue 50% right share of FMDBL is on review in Securities Board of Nepal (SEBON) pipeline. The microfinance company is proposing to issue shares in the ratio 2:1 (50%) at the face value of Rs 100 each to be issued to the existing shareholders at par. As per ICRA Nepal, the grading is constrained by moderate track record of FMDB (operating since 2010), stiff competition with other wholesale lending MFIs3 and commercial banks, higher portfolio vulnerability arising from large share of exposure to cooperatives (~41% of credit portfolio) which lacks on regulatory supervision. The grading is also constrained by low seasoning of FMDB’s credit book (~54% of loan as of Jul-16 was disbursed in last two years), relatively high portfolio concentration (~41% of total loans among top-20 borrowers on mid-Jan-17), lack of diversity in earnings, lower representation of promoters in the board (two directors from promoter groups in five membered board, lack of independent board member and uncertain operating environment that banks in Nepal are currently facing Global IME Capital Limited has been assigned as the issue manager for the rights issue. First Microfinance has earned net profit of Rs 3.36 crore in the second quarter of the fiscal year 2073/74 .Its paid up capital stands at  Rs 26.45 crore and after the issuance of 50% right share  the paid up capital will rise to Rs 39.67 crore.