Options available to ADBL to reach Rs 4 arba by the end of this fiscal year

The current paid up capital of Agricultural Development Bank Limited (ADBL) stands at Rs.3.42 arba.  The 6% non cumulative irredeemable preference share of Government of Nepal which stands at Rs.6.43 arba has been disallowed by the Nepal Rastra Bank (NRB) to be included in the paid up capital. So, ADBL should come up with Rs.4.58 arba to reach a paid up capital Rs.8 arba in the stipulated time frame. Furthermore, as per the NRB directive all the commercial banks should reach paid up capital of Rs.4 arba by the end of this fiscal year. ADBL needs approximately Rs.58 crore to hit the paid up capital of Rs.4 arba mark by the end of this fiscal year. Here are the few things ADBL can do to increase the paid up capital:

1. Bonus Issue

ADBL can issue bonus share of 16.95 % to reach the required paid up capital of Rs.4 arba. ADBL can easily tap its reserve to issue this bonus shares as it has capacity to issue bonus share up to 116%. In the past ADBL had offered 31% cash dividend from the earning of the fiscal year 2069/70. It has also offered 7% bonus and 8.79% cash dividend from the earning of fiscal year 2070/2071. This shows that the bank is not hesitant to open its vault to the shareholders.

2. Right Issue

ADBL can opt to issue right shares to its shareholders. If we were to look at the trends among BFIs, they usually issue some amount of bonus share before right issue. Besides, there is no strong reason for ADBL to offer right share at this time as there are other options available on the table.

3. Strategic Partner

It has been a while that ADBL is trying to bring a strategic partner. The process has been stagnant for a while and is (almost) lost in the bureaucratic hassle. It’s unlikely, it can also revive the existing idea of bringing in a strategic partner to reach the paid up capital of Rs.8 arba by the end of FY 2073/74.

4. Conversion of Preference Shares into Common Stock

Although highly unlikely, there is also the possibility that preference shares issued by the bank may be converted into common stock. If this happens the bank’s paid up capital will automatically reach Rs.9.86 arba. Among these four options it is highly likely that the bank will use either first or second option or combination of both.