Share price of a quarter of firms below par value
KATHMANDU, APR 02:
Share prices of one-fourth of the total number of the listed companies at Nepse have plunged below par value due to the prolonged bearish run at the share market.
As of March-end, share prices of 56 companies among the 214 listed companies at Nepal Stock Exchange (Nepse) were not worth even Rs 100 — the face value at which the shares were initially issued to shareholders through a primary issue. There are 15 more companies with share prices below Rs 110 including two commercial banks.
“The dip in share prices has resulted in heavy financial losses for the general investors and the ongoing slump has taken a financial toll on the investors, compelling them away from stock trading,” said general secretary of the Nepal Stock Investors’ Association Prakash Rajoria.
The dip has even discouraged primary issues in recent times as lucrative stocks belonging to good companies are also going through a deflation in share prices.
“If investors can buy shares of commercial banks at near face value then buying shares of small financial institutions through IPO is less attractive for seasoned investors,” said the investor.
Investors recently submitted a memo to the Finance Ministry, Nepal Rastra Bank and Securities Board of Nepal with a list of measures to stop the current free fall of the market that has pushed the Nepse index below 300 points.
Along with creating a market rescue fund and government owned mutual fund, investors have urged the regulators to make it mandatory for financial institutions to include a portion of securities in their investment portfolio.
“Moreover, we are requesting the government to introduce the buy-back option for shares that have gone below par value to protect the market from getting further hurt due to the spiralling price pressure,” he pointed out.
A share buy-back is a purchase made by a company of its own shares in the market through retained profits.
Some companies do not distribute dividends but buy back small amounts of shares annually. An advantage of buy-backs is that, by boosting the share price, they provide shareholders capital gains rather than income.
“The Company Act allows listed companies to buy back shares if the AGM approves it but the companies can do so only if it has unused profits,” pointed out stock analyst Rabindra Bhattarai, adding “Most of the companies whose share prices are dismally low do not have the ability to buy back even if the regulator forces them to do so.”
He pointed out that a company like Nepal Telecom can afford to buy back shares as its retained profit is huge. But banks cannot exercise this option despite their ability to buy back shares because they have to maintain a certain amount of capital due to regulatory norms and releasing funds to buy back shares means cutting on the capital.
Companies with less par value
Finance companies: 15
Development banks: 23
Insurance: 3
Manufacturing: 11
Hydropower: 1
Hotels: 2
Others: 1
(Source: Nepse/THT)
