Kathmandu Finance, Civil Merchant dump merger plan

KATHMANDU, MAR 09 -

Kathmandu Finance and Civil Merchant Bittiya Sanstha have given up their plan to merge over differences regarding the value of their shares. The prospective merger candidates decided to go their own ways after failing to agree on the share prices determined by their due diligence audit (DDA).

This is the first instance of a potential merger being abandoned after receiving a letter of intent (LoI) from Nepal Rastra Bank. The central bank scrapped the LoI stating that neither of them had asked for additional time to complete the merger nor reported the progress they had made.

As per the merger bylaw, financial institutions should complete the merger within six months after getting the LoI. If they fail to do so, they can ask the central bank for extra time. “This is the first

time that an LoI for merger has been scrapped,” said a senior NRB official.

Officials of both the companies confirmed that negotiations fell apart after they could not agree on the valuation of their shares fixed by the DDA. The DDA had determined that shares of Kathmandu Finance were worth Rs 128 per unit and shares of Civil Merchant Rs 112 per unit.

“We wanted the merger to be done based on the share prices determined by the DDA, but Civil Merchant said that both the shares should be priced equally, to which we could not agree,” said Hari Krishna Shrestha, managing director of Kathmandu Finance.

Civil Merchant CEO Jayandra Lal Shrestha said, “We wanted the merger to be done on a 1:1 basis as share prices of merged finance companies have come down lately.”

A merger of these companies would have pushed up their rankings on the strength of their combined capital. Kathmandu Finance has a paid-up capital of Rs 154 million and Civil Merchant Rs 150 million.

As of mid-December, deposit collection and credit issue of Kathmandu Finance stood at Rs 479 million and Rs 374 million respectively while deposits and loans of Civil Merchant amounted to Rs 632 million and Rs 542 million respectively, according to central bank figures.

Following the collapse of their merger plans, the two finance companies are likely to set out on different routes. Kathmandu Finance is scheduled to issue rights shares to increase its paid-up capital to Rs 200 million as required by the central bank for a national-level finance company. “We are going to issue rights shares in April-May,” said the company’s chief. “Then we will definitely go for a merger to upgrade our company to at least the level of a national-level development bank.”

Meanwhile, Civil Merchant has initiated an informal dialogue with Civil Bank for a possible merger with the commercial bank. The Civil Group is the key promoter of both Civil Bank and Civil Merchant. “Informal talks have taken place, but no formal negotiations are going on for a merger,” said Civil Bank’s CEO Kishor Maharjan.

Source: The Kathmandu Post