Three large FPOs to supply further 2.5 crore unit shares into stock market and collect Rs 8.85 arba from the market; can this be good for the current liquidity shortage?

Three large banks, Nepal Bank Limited (NBL), NMB Bank Limited (NMB) and Citizen Bank (CZBIL) are bringing in Further Public Offering (FPO) for a total of 2.96 crore units and all at a premium.

Nepal Bank has proposed to issue the FPO at Rs 280, with a primary aim to decrease the government stake from 62% to 51%. All the processes for underwriting has been completed and is waiting the nod from SEBON. They will be raising a total of Rs 4.95 arba from the market.

Similarly, NMB Bank is issuing FPO in order to meet the paid-up capital requirement set by Nepal Rastra Bank. The FPO has been set at Rs 333, and already got approval from SEBON to issue the share. After the FPO, its paid-up will reach RS 7.6 arba, so it’ll also have to issue approximately minimum 7% bonus shares from the profit of last FY 2073/74 to meet the requirement of Rs 8 arba.

Then Citizen Bank will also be issuing 4.63 lakh units FPO at a premium. The bank has already met its paid up capital, so the primary purpose of the FPO is to bring down the promoter’s ownership to 51% and to strengthen the reserve. Unlike other two, the price of its FPO hasn’t been fixed yet. However from our reliable sources we’ve come to know that the tentative price will be nearly 20% below the current market price. So for the ease of calculation, we set the FPO price at 20% lower than the LTP (Last Traded Price) as on Jestha 18, 2075.

The details of the FPO of the three banks under study are listed below:

*The FPO of CZBIL isn’t fixed yet and is assumed as 20% below market price based on the information from our source. The addition in reserve will vary accordingly, so that amount also isn’t 100% accurate.

As you can see from the table above, the FPO of these banks will be amassing Rs 8.85 arba from the market. The minimum paid-up of the commercial banks stands at Rs 8 arba and these issues will be raising more than that amount.

With the ongoing liquidity shortage in the market, this cannot be a good news.

Out of the total 8.85 arba, only the par value (total units issued*100) will go into the paid up capital and the rest amount will be added into reserves as premium. So once the amount goes into reserves, the bank cannot distribute it to the shareholders as cash dividend. It’ll have to wait and float it as stock dividend.

Similarly given the current directive, a bank in order to distribute bonus first has to approve it from Board Meeting, then regulatory body and then AGM. So all these will take months of time to come through.

In addition to that, a total of 2 core 95 lakhs shares will be added in NEPSE. The market is already lush with the increase in supply of shares because of the rapid issuance of bonus and right shares of Banks and Financial Institutions after the increment of the minimum paid-up capital requirement. These issues will further increase the supply, widening the gap between market demand and supply causing the index to go further down which is already bearish.

As per the latest developments, if everything goes well then Nepal Bank and NMB Bank is planning to float the issue within this Fiscal Year. If that happened then these two banks will collect Rs 8.75 arba from the market further tightening the liquidity. Similarly, we can also see that most of the underwriters for both the issue are same, which brings in the question will they have sufficient amount if the issue becomes largely undersubscribed?

One way or the other, if these FPOs do come within this fiscal year, the liquidity of our market is going to dive further down.