Number of primary issues on decline
KATHMANDU, APR 06:
The lukewarm performance of the secondary market has affected primary issues leading to a waning number of public offerings.
Only five financial institutions have been granted approval for Initial Public Offering (IPO) by Securities Board of Nepal (Sebon) in the last eight months. The upcoming issues are also small in size as they make up only Rs 181 million in value.
The number of public issues has come down in recent times as the secondary market is in the doldrums making the issuers apprehensive.
“Earlier, underwriting of the issues was a mere formality as IPOs were over-subscribed but now merchant bankers have to be cautious as the general public is not very keen regarding the overall capital market,” pointed out president of Merchant Bankers Association of Nepal Bhisma Raj Chalise.
It took about one month for the recent issue of Manjushree Financial Institution and Bagmati Development Bank to be fully subscribed. In August, 2011, Bhargav Bikas Bank’s initial public offering worth Rs 4 million was not fully subscribed compelling its underwriter NMB Capital to purchase the shares.
Since investors at present are able to buy shares at the stock exchange at near par value, the attraction for IPOs has been fading. Among the 215 listed companies, share prices of 57 companies have dipped below face value.
The response to the upcoming IPO of Janata Bank will help assess the market situation for primary issues. The commercial bank is coming up with the largest public issue worth Rs 600 million. Citizen Investment Trust, NMB Capital and Civil Capital have been appointed as the underwriter and issue manager of the IPO.
“Issue managers have done a research before announcing this issue and have found that investors will not reject shares of large commercial banks at face value,” pointed out Chalise who is also CEO of Civil Capital, adding, “But we are crossing our fingers as the market is not good right now.”
Like the secondary market, the primary market is also dominated by financial institutions and since some time the involvement of financial institutions in IPOs has noticeably gone down. Financial institutions have to issue shares in order to comply with Nepal Rastra Bank (NRB)’s mandatory provision requiring them to increase their paid up capital by issuing shares.
Four more commercial banks will launch their IPOs next year. In addition, about 28 development banks and finance companies have to float shares in the next two years.
“Lately, most of the existing banks and financial institution have fulfilled the mandatory requirement of NRB, thus, the number of IPOs has reduced,” explained director of Sebon Niraj Giri.
“However, the current bearish trend might also be responsible for financial institutions stalling their IPOs for as long as possible,” he added.
Nepse halts Pragyan’s trading
Nepal Stock Exchange (Nepse) halted the transaction of brokerage house, Pragyan Securities, today. “Trade coming through Pragyan was suspended because we received complaints that it had failed to settle the transaction money with other broker companies,” said managing director of Nepse Shanker Man Singh. “The matter has been cleared now and it will be allowed to participate in trading from the next trading day,” he added.
Source: THT
