In the recent context, it has often been observed that every newly issued or yet to be approved IPO/FPO are backed up with debates on their validity. One such issue in today’s market is the FPO proposal of Nepal Bank Limited (NBL).
Nepal Bank Limited has a paid up capital ofRs 8.04arba and Rs5.04 arba of reserve fund. However, heated arguments have introduced in the market as the bank aspires to further increase it’s paid up capital. It has requested the regulatory body to float 1 crore 76 lakh units ordinary shares in premium.
As per the provision of Securities Registration and Issue Regulation, 2073, under the clause 14, sub clause 1 and 2, there are certain provisions that the bank must follow. For instance,
- Any listed company that hasissued Initial Public Offering (IPO) can float Further Public Offering (FPO).
- Company must have posted net profit in at least last three years among the last five years to float FPO.
- Company must have net worth per share greater than the paid up value of share.
In context of Nepal Bank Limited, it has been clearly observed that the bank has been unable to comply with the given set of rules as per the guideline. The bank announced net loss in the FY year of 2071/72.Similarly, the bank was able to maintain a positive reserve fund of Rs 24 crore only at the end of 4th quarter of FY 2072/73.
Audited report as of FY 2072:
Audited report as of FY 2073:
As we analyze the audited report of 2073, the accumulated profit is seen to be nil. The bank further has an accrued loss of Rs 4.5 arba.
See the audited report of Nepal Bank Limited:
The state owned bank was able to gain profit only in FY 2073/74. This means the bank has a record of net profit of only last one year. In the provided situation, how will the bank be able to show the net profit in the last three consecutive years? Therefore, a possibility of delaying of FPO can be estimated from the observation.
If the bank ought to float FPO, the bank needs to wait for one more year of its audited report. The investors might lose confidence on regulatory body if the FPO request in premium is approved for the bank. However, alike Nepal GrameenBikas Bank Limited, if the bank wants to float FPO at Rs 100 per share, the decision completely remains in the hand of the regulatory body.
Discarding the negative aspects, Nepal Bank Limited has become one of the best performing banks in the recent years. For instance, as of the second quarter of FY 2074/75, the bank has a net profit of Rs1.6 arba. Similarly, the banks’s deposit and loan for the same quarter amounts to Rs 91.89 arba and Rs 78.71 arba. The bank’s annualized EPS further stands at Rs 40.74 while its PE ratio is 8.64 times. The net worth per share of the bank amounts to Rs 162.76.
It is also found that Nepal bank Limited has the highest Return on Assets (ROA) compared to other commercial banks i.e. 2.90% in the recent quarter. Nepal Bank Limited stands at fourth position in terms of net profit among the competing commercial banks of the country. Nepal bank Limited was also seen in the leading position in terms of net profit in both; the first quarter of FY 2074/75 and the second quarter of FY 2073/74.
The decision now lies in the hand of the regulatory body. The FPO approval decision is not a fortnight decision. It might take several months for the FPO to be approved. However, the question now arises: should the regulator be guided by rule book or the present performance of the bank? It would definitely be unfair to competitors of the FPO of the bank is approved however, it might be motivating to those banks who have been putting efforts for a better outcome if the FPO is approved.
What views do you have on this debate? Please do leave your suggestions in the comment box below.
