“Minimum bidding price we have set for NIBL is very rationale”

After the first lot of auction process failed to woo much investors, Rastriya Banijya Bank Ltd—a fully state owned bank- has again begun the process of divesting its remaining shares at Nepal Investment Bank Ltd (NIB) and Nepal Aawas Finance Company Ltd through another auction. Krishna Prasad Sharma, CEO of RBB, is now confident that this time their shares at these two institutions will be fully-subscribed.

ShareSansar sat with him to talk about the process of divesting its crossholding, reasons behind the under-subscription in the first lot, strategies to rope in more investors this time, RBB’s financial position and share market’s recent downfall, among other issues. Excerpts:

How many shares were left and what are the plans ahead to auction those shares now?

In the earlier lot, around 12 Lakh units of shares of Nepal Investment Bank Ltd were sold. There are around 57 Lakh shares remaining, including the bonus shares. We have fixed minimum price of Rs 400 per unit share of NIBL this time after adjusting the cash dividends and bonus shares distributed by the bank. This is an attractive price at this time in the market. We are confident that all the shares will be sold out in this lot. Interested investors can bid at least 100 units of shares while there is no limit for the maximum bid. We have already made the announcement for the bidding. Investors will have the deadline of a week, or until Mangsir 29, to submit their bidding. We plan to complete the allotment by the end of Poush. We have made the arrangements so that small to big institutions and investors outside Kathmandu valley can also easily submit their bidding. Once we sell these all shares and regulator release of the dividend that has been stopped due to our crossholding, we expect to earn around Rs 2 arba from this deal which will help to comfortably maintain the bank’s capital adequacy.

What are the reasons that you found for under-subscription of your shares of the NIBL in the earlier lot of auction?

The bank saw mainly two/three reasons for the under-subscription last time. First, the annual general meeting of the NIBL was approaching which led to the confusions among the investors that whether they will be entitled to the dividend of the company or not. Second, we hear complaints that the minimum bidding price was a bit higher. The third and important reason was the doubts regarding the free tradability of the shares of NIBL. This time we have addressed all these reasons. The shares is also being traded in the secondary market—Nepal Stock Exchange (Nepse). Minimum bidding price has also been reduced this time. The investors purchasing the shares in the first lot were able to receive the dividend announced by the NIBL. What I can say now is that the investors’ confidence in our would-be auctioned shares is built up.

The market price of the share is going downwards in recent days while the bank has already adjusted the dividend announced for the last fiscal year. Don’t you think the price is still high?

Per unit price share price of NIBL is still above Rs 700 so the minimum bidding price we have set is still rationale. Scrip of NIBL is very lucrative and it has been distributing handsome returns to the investors every year. The price was reduced considering the aspect of dividend adjustment of the NIBL. If the initial responses we have got so far is something to go by, we are pretty sure that all the shares will be subscribed this time.

How much part of the shares was subscribed by the institutional and individual investors last time?

The highest bidding was up to Rs 850 last time. Generally, the price was quoted around the price of Rs 530 that we have fixed as the minimum bidding price. There is fluctuation in terms of individual investors while the institutional investors quoted the minimum price that we have quoted. It seems that the individual investors were trying to get hold of shares as early as possible while institutional investors quoted the price analyzing the market trend and understanding the investors’ sentiment.

Though you seem confident of full subscription if not over-subscription, are there any strategies you will pursue to woo more investors toward your shares?

The investors have already understood the value of these shares. We have made commitment to the buyers that we will get them paid the dividends of the bank which we did. We said that we will ensure the free tradability and the shares are soon going to be traded in the secondary market. The price is another thing which is subject to be fluctuated. Similarly, promoter share is for the long term investment and it is a golden opportunity for those investors who want to have a hold in a bank for a long period of time. This opportunity is unlikely to come again.

Before deciding to auction it for the public, the bank had also made attempts to sell the shares in bulk to the institutional investors. The negotiations was said to have broken down due to price differences of nominal margin. Don’t you think selling in the bulk at that time would have been a prudent move?

No, it was not only the price differences which led to the failure of the bulk divestment. There were other fundamental differences during the negotiations. We should also adopt the procedures to make divestment so we took the course of auction. We have not felt any difficulties in the divestment through the auction. It’s a good thing that the shares have gone into the hands of many investors and the process also involved the mass investors. The institutional investors holding the bulk shares could hold the shares for long period of time while purchase by the mass investors means the shares will be frequently traded in the market.

You had given some 15 days to the investors earlier for the bidding while you are giving only seven days this time. Isn’t it short period?

Most of the investors make bidding on the last day. We have given the notice few days ago that we will hold another auction and made the official notice giving a week for the bidding. Since we have a time constant, we aim to complete the whole process of divestment by Poush end.

The secondary market is observing rapid fall in recent months and the investors’ sentiment is also not much strong. Don’t you think that this will also impinge your share auction process?

Share price of any company can go up or down. The promoter share is mainly for the long-term investors so they do not buy it just to sell within a day or two. Investors are getting the shares of such a reputed bank in relatively low price and you cannot get the promoter shares of this level of bank at this price. Long-term investors do not give much importance to the short-term volatility of the share market. Even considering the fall at the share market, the current price that we are currently offering is reasonable. Institutional investors are showing interest toward the shares so we are confident that all the shares will be sold out this time. The insurance regulator has also increased the threshold of the insurance companies for their investment recently. Our shares will be a very good choice for them.

Don’t you think you should have requested Nepal Rastra Bank (NRB) to consider your case of cross-holding rather than rushing to divest the shares within short period and on loss?

We are not incurring loss from the divestment since the price of the shares have increased manifold compared to the price that we bought. Since restriction of crossholding is clearly stipulated in law, we don’t think it was possible and wise to request the central bank or government to consider the case. We are bound to abide by the law. As we have already started the process to divest, we don’t think we should retract. Also we are going to earn from the sale of the shares and we will be able to maintain the capital adequacy ratio. This will ultimately help us on the growth of our bank’s business. We can make investment from the money earned from the sale of these shares. We might invest in the stocks of insurance companies which will not amount to crossholding.

How is the current liquidity situation of the bank? Has the liquidity mismatch problem resolved now?

There is still liquidity surplus in the banks including our bank. NRB has been using various instruments to address the problem. These instruments have not proved to be effective yet. We are trying to expand more credits.  The credit growth of our bank is good. For mopping up the complete liquidity, it may take a year. By the end of this fiscal year, I think we will be in the comfortable liquidity position. Despite liquidity situation in the banking system, banks’ net interest income is increasing. Rather than other incomes of the bank, net interest income is important. Be it through reducing its own cost or slashing the deposit rate, most of the banks have not allowed dropping to fall their net interest income. So, the banks are trying their best to maintain the return. While doing this, there might be situation where the depositors are offered low interest rate and borrowers not getting the low interest rate as much as they are likely to get. The current situation is that banks should have gone for the investment aggressively by slashing their lending rate significantly. This is not happening now because there are not any projects even when banks show readiness to make investment in a massive way.

How is the current financial position of the bank?

Our bank’s financial position is encouraging. We have earned the highest profit while we are also leading in terms of deposit mobilization. The credit supply is also good. Recently, we held seminars in Pokhara and Nepalgunj. There is rise in the supply of loans in the small and medium enterprises (SMEs) sector there. These all factors are making the base of the bank stronger. This also reduces the risk of the bank on one side while on the other it also expands the clients’ base. We are also concentrating in the SMEs lately. We have also delegate more authority to our branch office which has also helped in the increase of the bank’s investment.

There is still excessive liquidity in the banking system which is pushing down the interest rates. What do you think  might be the reasons for share market not being able to jump despite such favorable financial situation for the investors?

The share market is observing much up and down. There is not much stability in the market. There are not any solid reasons for the market to fall drastically. The banks are giving returns no less than what they had been offering. So, I think our market is more dependent on speculative type of rates. Since the rate is mostly based on speculative rather than return based, such investors make speculation in a way that suits them only. Or, the market is returning toward the standard level. If it had increased in the past on the basis of return rate, there is no reason of retreat now. When the banking industry is growing, the government is giving value to the industry and even the return rate is also high, why the scrip is falling than? Either this might be those investors who made investment in the speculation earlier or they are now diverting their investment to other sectors like gold and real estate. The current fall of the stock do not match with fundamentals. Investors are yet to be sensitive in the market fundamentals and principles.