Promoters shy away from buying rights shares
KATHMANDU, APR 04 -
With the provision of income source disclosure in place and the capital market’s bearish run, banks and financial institutions (BFIs) promoters are refraining from purchasing right shares.
For an instance, promoters of Citizens Bank International and Prime Commercial Bank did not apply for rights shares. The institutions had recently issued rights shares worth Rs 80 million and Rs 60 million, respectively. Both the banks sold those shares through auction. General Finance also also published a notice of auction for right shares worth Rs 10 million.
Stock analysts held the provision of income source disclosure while purchasing shares responsible for the situation. “This provision has become burdensome to large investors,” said Rabindra Bhattarai, a stock analyst. “Investors hardly demand for shares.”
Bhismaraj Chalise, president of Merchant Bankers’ Association, said large investors were most hit compared to small ones. “Investors have to disclose their income sources even when they are dealing with small amount,” said Chalise. “Investors pouring in millions in previous years are facing tough times to disclose their income sources.”
According to a banker, promoters, who invested millions in the past under old provision, are going through a tough time, as a majority of the listed companies have issued rights shares in 1:1 ratio and they have to invest the amount equal to the their initial investment. “Investment has shrunk after the introduction of the provision and increased interest rates,” said Nanda Kishore Mundada, president of Nepal Stockbrokers’ Association.
“Investors, who invested without a proper knowledge of ordinary shares and promoters’ shares, are having further trouble,” said Bhattarai.
Moreover, analysts said dwindling stock prices have also reduced the demand for shares. “Sales of promoters’ shares obviously get affected when ordinary shares’ price is hovering around Rs 100,” said Chalise. “On top of that, several conditions are imposed on promoters’ shares. Promoters are required to hold their shares for a minimum period of five years and cannot mortgage the shares for loans.”
Mundada added that a meagre return on investment has also contributed to decline in the demand of promoters’ shares. “Return on share investment is a meagre five percent per annum,” said Mundada. “BFIs give more than 10 percent returns on saving accounts.” Moreover, the present situation is also not favourable for taking new loans due to high bank rates, added Mundada.
In the current fiscal year, 26 companies, including Kumari Bank, Prime Commercial Bank, Bank of Asia and Sunrise Bank, were permitted to issue rights shares worth Rs 4.48 billion. In 2009-10, the Securities Board of Nepal (SEBON) had allowed the issuance of promoters’ shares worth Rs 10.96 billion.
Source: Kantipur
With the provision of income source disclosure in place and the capital market’s bearish run, banks and financial institutions (BFIs) promoters are refraining from purchasing right shares.
For an instance, promoters of Citizens Bank International and Prime Commercial Bank did not apply for rights shares. The institutions had recently issued rights shares worth Rs 80 million and Rs 60 million, respectively. Both the banks sold those shares through auction. General Finance also also published a notice of auction for right shares worth Rs 10 million.
Stock analysts held the provision of income source disclosure while purchasing shares responsible for the situation. “This provision has become burdensome to large investors,” said Rabindra Bhattarai, a stock analyst. “Investors hardly demand for shares.”
Bhismaraj Chalise, president of Merchant Bankers’ Association, said large investors were most hit compared to small ones. “Investors have to disclose their income sources even when they are dealing with small amount,” said Chalise. “Investors pouring in millions in previous years are facing tough times to disclose their income sources.”
According to a banker, promoters, who invested millions in the past under old provision, are going through a tough time, as a majority of the listed companies have issued rights shares in 1:1 ratio and they have to invest the amount equal to the their initial investment. “Investment has shrunk after the introduction of the provision and increased interest rates,” said Nanda Kishore Mundada, president of Nepal Stockbrokers’ Association.
“Investors, who invested without a proper knowledge of ordinary shares and promoters’ shares, are having further trouble,” said Bhattarai.
Moreover, analysts said dwindling stock prices have also reduced the demand for shares. “Sales of promoters’ shares obviously get affected when ordinary shares’ price is hovering around Rs 100,” said Chalise. “On top of that, several conditions are imposed on promoters’ shares. Promoters are required to hold their shares for a minimum period of five years and cannot mortgage the shares for loans.”
Mundada added that a meagre return on investment has also contributed to decline in the demand of promoters’ shares. “Return on share investment is a meagre five percent per annum,” said Mundada. “BFIs give more than 10 percent returns on saving accounts.” Moreover, the present situation is also not favourable for taking new loans due to high bank rates, added Mundada.
In the current fiscal year, 26 companies, including Kumari Bank, Prime Commercial Bank, Bank of Asia and Sunrise Bank, were permitted to issue rights shares worth Rs 4.48 billion. In 2009-10, the Securities Board of Nepal (SEBON) had allowed the issuance of promoters’ shares worth Rs 10.96 billion.
Source: Kantipur
