Last minute unprecedented action from the NRB freezes capital of investors; Prabhu-Grand, Acquisition or Merger ?

The Trading of Prabhu Bank (PRVU) in Nepal Stock Exchange (NEPSE) has been halted on Ashwin 14, 2072. As per the Company secretary of Prabhu Bank, Mr Amit Bhandari, “The trading of the bank was halted because the Nepal Rastra Bank (NRB) has directed the bank to go into merger process with Grand Bank ltd (GRAND) instead of acquisition. In the letter dated Ashwin 12, 2072 the NRB directed to change the process due to the swap ratio which was fixed at 121.45:65.58.” Now, the merger process of these two banks is expected to take at least three months. The DDA must be carried out as well as the separate AGM of both the banks must approve the merger process. According to the Trolichan Pangeni, “The NRB has directed the banks to go for merger process as the price mentioned in DDA and swap ratio is different. When this difference arises the law requires merger between BFIs.” Recently the NRB was busy touting its fast track process for merger and acquisition of Bank and Financial Institutions (BFI). However, the central bank has lengthened the existing process. The PRVU had acquired the Letter of intent (LOI) from the NRB and was waiting the final approval to start Joint operation. Furthermore, PRVU has publicized the probable start date for joint operation to be Bhadra 14, 2072 pending approval from the NRB. The U turn in this fast track policy of the NRB has left investors and stakeholders scratching their head. The directive from the NRB to raise the paid up capital of BFIs has initiated numerous merger and acquisition process in BFIs. The NRB intervention at the final stage of acquisition process of GRAND bank by PRVU shows the bureaucratic hoops the BFIs may have to jump to go through merger and acquisition process. This action from the NRB has created uncertainty in the time frame for a merger and acquisition to complete. Whenever there is  ongoing merger process, the trading of scrips of the company is halted. However, in case of acquisition, the acquiring company's trading is not halted. As PRVU was acquiring GRAND bank, the scrips of PRVU was being traded in the NEPSE. Now, the NRB has directed the both banks to go into merger process, thus the scrips of PRVU has been halted. This unexpected action from the NRB has frozen the money of investors of PRVU for atleast few months. The eleventh hour NRB intervention in acquisition process of GRAND bank by PRVU shows lack of professionalism.  This puts a bad precedent for NRB as the central bank has lost some credibility. History of Acquisition process of Grand Bank by Prabhu Bank PRVU and GRAND had signed the Memorandum of Understanding (MoU) for the acquisition process on January 29, 2015. The trading of scrips of GRAND bank was halted after MoU was signed. The last traded price of Grand bank Stood at Rs 184 on January 29, 2015. Special General Meeting PRVU and Grand Bank Limited held on July 23, 2015 at 8:30 AM at Lainchour Banquet, Kathmandu had endorsed acquisition of Grand by Prabhu Bank. The meeting of both the companies had approved the per share value fixed by the Due Diligence Audit (DDA) of Prabhu and Grand Bank at Rs 121.45: Rs 65.58 respectively.  After the acquisition the paid up capital of Prabhu Bank will reach to Rs 5.92 arba from 3.208 arba at present. On July 23, 2015 the Company secretary of Prabhu Bank, Mr Amit Bhandari, Said “If everything goes as per planning, the shareholders holding 100 units of Prabhu Bank shares will get 21.45 shares in premium, and the shareholders holding 100 units of Grand Bank will get 65.58 shares of Prabhu Bank, for that the separate book closure date will be published and accordingly integrated operation of both the banks will commence from Bhadra 14.” Prabhu Bank SGM has endorsed acquisition of Grand Bank today; Joint operation from Bhadra 14 Know how Prabhu Bank is one of the best buy at the current market scenario; shareholders to get 21.45% extra share PRABHU BANK JOURNEY FROM FINANCE TO COMMERCIAL BANK