Nepal SBI plans for Rs 2.60 arba right share at premium, What will the regulators do ?

Nepal SBI bank Ltd. has proposed 27 % stock & 1.42% cash dividend (for tax purpose). Besides, the bank has also proposed right shares of face value up to Rs 2.60 arba at premium price. Further, the bank plans to endorse a proposal, through AGM, to delegate the authority to the Bank’s Board to fix the premium for the rights issue. The right will be issued within the ceiling of net-worth per share as per the last audited financial statements.

The bank is walking a fine line where the rules governing the premium price for right shares are not that very clear. There are no explicit rules in the books of the Nepal Rastra bank (NRB) or Securities Board of Nepal (SEBON) barring companies from issuing right shares at premium price. Now, the issuses like this rest on how one interprets the existing rules and regulation.

The Company Act 2063, gives wide liberty to companies while issuing their shares on premium. The act does not distinguish the kind of shares (Right/ IPO /FPO) that can be issued on premium. After a company meets certain criteria, then they can issue shares on premium as  per the company act 2063. As of now, Nepal SBI  meets all the condition set forth by this act to issue right shares in premium.

Cases like these would serve as test for reformers like Governor Dr. Chiranjibi Nepal of the NRB and Dr. Rewat Bahadur Karki, Chairman of SEBON.

Trilochan Pangeni, Spokesperson for the NRB, said, " The right issue should be in accordance with the regulations of office of Company Registrar and should get approval from the respective bank's AGM as well as SEBON.  If they satisfy all the criteria and is in accordance to their capital plan, we will approve the right issue in premium."

ShareSansar was unable to reach officials from SEBON for a comment.

Regulation and guidelines from SEBON on Right Issue,Public Issue, and  Issuance of Securities at Premium are as follows:

"Right issue" means an offer made to the existing shareholder or any person nominated by such shareholder for the subscription of any securities issued by a body corporate.

"Public issue" means an offer made by a body corporate before the general public for the subscription of its securities by publishing a prospectus.

Issuance of Securities at Premium:

A body corporate while making public issue may issue the securities at premium. In order to issue the securities at premium, the following condition shall be required to have been fulfilled:-

(a) Shall have to fulfill the conditions prescribed by the prevailing company related law,

(b) Securities may be issued at premium while remaining within the limit of Net Worth per Share derived from latest audit,

(c) Outside expert or expert institution shall be required to have carried out due diligence audit about the methodology, rationale and justification of fixation of premium.

Nepal SBI Bank’s declare 27 pc bonus; issuing Rs. 260 cr right shares in premium