Promoter shares will not flood market
KATHMANDU, MAY 13:
The fear that investors had regarding the market being flooded with promoter shares is apparently baseless as the amount of promoter shares traded at the stock exchange in the last one month is only a few million rupees more than the average daily turnover.
Since the beginning of April 2013, Nepal Stock Exchange (Nepse)’s trading floor has observed trading of about 584,000 units of promoter shares amounting to Rs 96.5 million. Average turnover of last nine months of the stock market stood at Rs 94 million.
In the beginning of April, the capital market regulator — Securities Board of Nepal (Sebon) — announced its decision to allow conversion of promoter shares belonging to financial institutions into ordinary shares through secondary market trading. The move was supposed to make the sale of the additional 19 per cent of promoter shares to the general public easier directly through brokers at the stock exchange as promoters need not issue an offer document.
In the third quarter of the fiscal year, 1.77 million units of promoter shares worth Rs 275.24 million were traded, before the provision was even announced — the amount includes shares sold through auction as well.
Despite simplifying the procedure to convert promoter shares into ordinary ones, promoter shares of only seven companies were traded since April at the stock exchange. There are 77 financial institutions whose promoter shares are listed at Nepse for trading.
“The fear that investors had is baseless in this particular case. Just because promoters can offload shares through the secondary market does not mean they will sell their shares immediately in one go,” said broker Bharat Ranabhat, who is also managing director of Kohinoor Investment. According to him, by the time brokers were ready to take orders, investors were ready with sell order at a lowered price.
However, easy saleability of promoter shares caused investors to panic expecting an oversupply of shares once again. The panic selling caused Nepse index, that was hovering around 520 points, to freefall. By beginning of May, it had plunged to 482 points. Excess supply of shares is attributed to the three long years of bearish trend that had overshadowed the market till April 2012.
“The index had already started retreating, hurting investor confidence. The fear of depreciation of share prices following a flooding of promoter shares further supported the decline,” pointed out president of Nepal Investors’ Forum Raj Kumar Timilsina.
Nepal Rastra Bank (NRB) — the banking regulator — allowed financial institutions to increase public equity up to 49 per cent from 30 per cent which opened up offloading of 19 per cent additional promoter shares in the market. Earlier, Sebon allowed the conversion of promoter shares only through the process of issuing offer documents as per Sebon’s Security Registration and Issue Regulation 2064.
“Investors should not have any fear as promoters who want to sell a large number of shares will prefer to issue offer letters and get the best price instead of releasing the shares in the stock exchange directly,” said chairman of Sebon Baburam Shrestha.
Moreover, regulation requires promoters selling more than two per cent of their shares to get approval from NRB so chances of large number of shares being offered for sale at once is pretty slim.
Source: THT
