Merchant bankers look for new biz avenues

KATHMANDU, SEP 08 -

With the number of public share issuances slumping in the past three years, merchant bankers are finding it increasingly hard to get adequate business.

They have asked the Securities Board of Nepal (Sebon) to make legal arrangements to enable them to enter into new types of businesses as per international practices.

“They have asked us to expand the scope of businesses they can do, arguing that business opportunities are limited in the present context,” said Sebon director Niraj Giri. “We are studying the possibilities of opening up new areas for them, such as investment advisory and loan syndication.”

Currently, Sebon regulation has fixed five types of jobs for merchant bankers, including issue management, shares registration, underwriter, portfolio management and depository participants for central depository system operation. They are now seeking work in areas of consultancy services, mergers and margin lending.

“We can hardly survive with the existing business opportunities,” said Bhism Raj Chalise, the chairman of Nepal Merchant Bankers’ Association. “The decreasing number of public issuances in the primary market and the poor status of the secondary market are to blame for the merchant bankers’ plight,” he added.

According to him, two merchant bankers, including Araniko Capital Management Company and Investment Management Merchant Bankers, are closing their operations, while the troubled Share Market and Finance is doing no business for a long time now. With their formal departure from the scene, there will be 12 merchant bankers operating in the country.

Looking at the figures of the initial pubic offering (IPO) and rights shares issuance over the last three years, there has been a drastic downfall in the number in the last fiscal year.

According to Sebon, it approved right shares issuance for seven companies, IPO for 15 companies and debenture issuance for three banks in the fiscal year 2011-12. The figure was high in the fiscal year 2010-11, with 31 companies getting a nod for the issuance of rights shares and 17 companies getting the initial public offering (IPO) approval.

Sebon had approved 35 companies for rights share issuance and 37 companies for IPO issuance in the fiscal year 2009-10. When limited public share issuance constrained their business opportunities, the regulator limited the scope of underwriting, which further hit their business.

Sebon has prevented them from underwriting more shares than their paid up capital. It means a majority of them can only underwrite shares worth Rs 70 million as their paid up capital requirement is just Rs 100 million and 30 percent of which should be allocated to the public.

As a result, banks and financial institutions are appointing several merchant bankers to issue IPO. For example, Commerz and Trust Bank has appointed issue and sales managers in Citizen Investment Trust (CIT), Nabil Investment, Civil Capital Market and Growmore Merchant Banker for its upcoming IPO worth Rs 600 million.

Likewise, Civil Bank has appointed CIT, Nabil Investment, NCM Merchant Bank and Ace Capital as the issue and sales managers for its public offering worth Rs 800 million. Although Sebon has not introduced regulations regarding this, it has been putting forth pre-conditions for IPO approval. Sebon took such a policy to ensure that the merchant banks do not carry more liabilities than their capacity.

“This policy has seriously affected our business prospects as we cannot entertain additional opportunities after we underwrite up to a certain amount,” said Rameshwar Pokharel, the managing director of Ace Capital Limited.

Sebon is also preparing to introduce guidelines regarding this soon, according to Giri.

The merchant bankers have asked Sebon to revoke this limitation. Sebon has not imposed this limitation for CIT which has benefited it greatly.

CIT’s Executive Director Rishiram Gautam admitted that they obtained more business opportunities in underwriting last fiscal year as compared to previous years. It was involved in share issuance and underwriting of Janata Bank last fiscal and has been appointed the issue manger for both Civil Bank and Commerz and Trust Bank. “I expect more business this year in the area of share issue and underwriting,” Gautam said.

Source: The Kathmandu Post