Sebon allows Lotus to return money raised from undersubscribed IPO

KATHMANDU, March 25:

For the first time in the history of the country´s initial public offering (IPO) market, the Securities Board of Nepal (Sebon) has allowed a financial institution to return back the money raised through an undersubscribed IPO.

The Sebon, the securities market regulator, on Sunday allowed Lotus Investment Finance, a category ´C´ financial institution, to return back the money after the IPO launched on June 10 last year could raise only Rs 11.31 million of the targeted Rs 80 million, Sebon Spokesperson Niraj Giri told Republica.

As per Sebon´s Securities Issue Guideline, companies that are not able to allot securities to investors within allotted timeframe of 40 to 70 days from the closing date of the IPO should return back the money to investors.

“In such case, companies that float primary shares and issue manager of these shares should jointly pay interest on these funds,” says the guideline. “Such interest should be paid on the basis of latest coupon rate on government bonds. And such interest should be calculated from the day sales of securities were concluded to the day preceding the payment release date.”

The Sebon guideline means both Lotus Finance and Civil Capital Market Limited, the issue manager and underwriter or primary shares of Lotus, will be responsible for paying interest on the funds of investors held till date.

“We haven´t fixed a deadline on release of these funds hoping both the companies would fulfill their obligations in a professional manner,” Giri said.

Earlier, after the IPO was undersubscribed, Lotus Finance and Civil Capital had engaged in battle of words blaming each other for underperformance.

At that time Lotus had asked Civil Capital to keep its promise and purchase 50 percent of the shares worth Rs 40 million. The request was made based on the agreement signed between the two prior to the launch of the IPO.

But Civil denied. It instead wrote a letter to the Sebon requesting that it be allowed to return Rs 11.31 million raised from the primary market to the public so that a fresh IPO can be launched again in future.

Following this, the Sebon sought the opinion of Nepal Rastra Bank, the banking sector regulator, which also recommended that the securities market regulator allow companies to return back the money raised from the public.

Later, Lotus Finance itself requested Sebon to let it return back the money to investors, as indecision in the matter was preventing it from re-launching the IPO or initiating other necessary measures to raise capital to meet minimum regulatory capital requirement of Rs 200 million by mid-July.

Source: Republica