Search for strategic partner for ADBL comes a cropper

KATHMANDU, JUN 26 - The government’s plan to bring in a strategic partner for Agricultural Development Bank Limited ( ADBL ) does not look like happening as there has been no takers.

The international consultant financed by the Asian Development Bank (ADB) to scout for potential partners could not find anyone interested in investing in the government dominated bank. The consultant said that two of the criteria inserted in the request for expression of interest (REOI) had turned off applicants: Prospective partners would be allowed to hold a maximum of 30 percent of the shares and only banks and financial institutions (BFIs) could apply. The Bank and Financial Institution Act (Bafia) permits only foreign BFIs to invest in Nepal’s BFIs.

The consultant has urged the Finance Ministry and ADBL to consider loosening the restrictions by allowing divestment of all the government shares (51 percent) in ADBL to give management control to the strategic investor and to seek Nepal Rastra Bank’s approval to allow non-banking financial institutions (like impact investors) to participate in the divestment transactions.

The ADB seems to agree with the consultant’s recommendation. “The ADB considers some adjustment of the REOI criteria might be necessary to enhance the prospects for successful divestment of ADBL , from the technical point of view,” it wrote in an email to the Post.

The project to bring a strategic investor in ADBL is being conducted under the ADB-assisted Rural Finance Sector Development Cluster Programme (RFSDCP) Subprogramme 2.  However, the government is not happy with the recommendation which has come just a few months before the project expires. The project closes at the end of December.

“First of all, the recommendation to revise the REOI requirements is an attempt to hide the consultant’s weakness,” said Krishna Prasad Devkota, chief of the financial sector management division at the Finance Ministry. “Second, it has come a few months before the project ends which has left us without any alternative.”

Devkota also said that the recommendation to allow non-banking institutions to become a strategic partner may not be a good idea from the regulatory point of view. The central bank has tightened the provision that only foreign BFIs can be investors and ordered non-BFI foreign investors to sell their shares to domestic companies or foreign BFIs.

The government said that it was currently studying the consultant’s advice. “Whether the government acts as per its recommendation may depend on whether the project is extended or not,” said Devkota. “It is not a good idea to do whatever the donor says.”

Referring to the consultant, the ADB said that despite its attempts to woo prospective partners based on the REOI, they showed no interest. As part of the marketing initiative undertaken by the consultant in January, BFIs were selected based on their size so that they would fulfil the REOI prequalification criteria and their potential interest as reflected by their participation in similar transactions in the past and or geographic location.

“However, the marketing activity did not indicate the interest of representative banks in the divestment transaction.”

Referring to the consultant’s analysis, the ADB stated that commercially-oriented strategic investors find minority shareholding (below 51 percent) in investee banks less attractive as it does not provide them the management control they seek. Also, internationally, non-banking financial institutions such as impact funds are active in investing in banks and financial institutions in developing countries with development objectives.

(Source: The Kathmandu Post)