Understanding the depths of merchant banking, mutual funds, underwriting & portfolio management services with Mekh B. Thapa, General Manager of NIBL Ace Capital

Thu, Sep 27, 2018 12:45 PM on Exclusive, Experts Speak, Interview, Stock Market,
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Mekh Bahadur Thapa, General Manager of NIBL Ace Capital, had started his journey in Capital Market from Securities Board of Nepal in early 2007.  After that till now he has completely devoted his time in this sector and has had the privilege of experiencing private perspective as well as regulators' perspective. He says, “So far the journey has been enriching and full of learning. With every ups and downs of the capital market, introduction of new policies on Mutual Funds, Central Securities Depository, Credit Ratings etc., implementation of the policies to set up and operate Mutual Funds, Depository Participants, ASBA/C-ASBA etc. in all of these I found myself very lucky to be a part of this phase of Nepalese Capital Market. The market is growing with strong base laying foundation for further growth over the time.”

NIBL Ace Capital, is one of the largest merchant banks of Nepal with the highest number of demat accounts. It has played roles of paramount importance in many crucial issues of the market. So in the backdrop, Sharesansar carried a brief interview session with Mr. Thapa. The excerpts of the interview are presented below.

Mutual Funds

How is the overall performance of Mutual Funds in Nepal so far? Has it been able to meet its objective?

In my opinion, one first phase of Close ended mutual funds is just over in Nepal; and maybe we can assess the overall performance of Mutual funds in Nepal for this first phase now. We should and I think everybody will come to the easy conclusion that this first phase of Mutual Funds operation and performance in Nepal was phenomenally outstanding despite the various odds and challenges. First Generation Mutual Fund Schemes namely SIGS1 and NBF1 has been able to generate an average of 47.06% and 35.60% annual return totaling 235.30% and 178% total return vis-a-vis the total market return of 179.31% and 145.03%. Actually, I believe that these first generation Mutual Funds helped this industry to be established as the real business and contributed a lot in the awareness and knowledge development amongst all stakeholders. But now, the situation has changed a bit because of the flooding Mutual Funds without proper setup, long bearish market, and changing perception of Mutual Funds by stakeholders. So a lot of things needs to be done by all stakeholders' if this business is to be made viable in long term at par with the international market.

Mutual Funds are less risky than investing directly in secondary market, but still many investors ignore this fact. In this scenario, how can merchant banks and/or SEBON motivate investors and create awareness?

It is an accepted principle worldwide that Mutual Funds are less risky than investing directly in secondary market which has been true in Nepalese case as well from various studies. Henceforth, it is obvious that Analysts, Investment Advisors, Regulators and even Government recommend investment in Mutual Funds for all early stage investors and non-sophisticated investors' at every stage. This is why, the government provides priority to Mutual Funds through various means and methods including tax leniency. If we aim to look the Mutual Fund business as an industry and reliable channel of converting savings into investment at large scale as it is internationally; all the stakeholders including SEBON and Mutual Fund Managers need to play a vital role ranging from policy reforms, investor awareness to policy/tax priorities. And, needless to say the Government will have the major say on this.

NIBL Ace was going to introduce open ended mutual funds scheme?

  1. How is it different from existing funds?
  2. Is it coming any time soon?
  3. What are the pro and cons of it in Nepali market?

We have been studying and working to introduce open ended mutual fund scheme for the first time in Nepal since long, and we are happy to share from this platform that approval process at SEBON for our open ended scheme named “NIBL Sahabhagita Fund” has taken pace. It has been evident that Open Ended Mutual Fund Schemes will be the key for overall development of Mutual Fund industry given its necessity for continuous reach, awareness, promotion, wider distribution network, flexibility on size and liquidity etc. We are sure that the success of NIBL Sahabhagita Fund will start the next phase of development in Nepalese Mutual Fund industry.

The open ended mutual funds are different from close ended funds on following grounds:

  • The scheme size can grow larger as decided by market with no ceiling
  • No maturity period till liquidation
  • Buy/sale at any distribution channel anytime/anyday as decided by Fund Manager in respective NAVs with entry/exit fees.

So the open-ended mutual fund is expected to roll the market within second quarter of this Fiscal Year if everything goes as planned, though regulatory approval process will be crucial for its launching. The pros will be manifold as it helps Mutual Fund Industry to enter the next level, raise market awareness/promotion, and will support Capital Market as well including all market stakeholders. Whereas, cons include the risk of liquidation pressure at times.

Underwriting:

How is the overall status of Underwriting in Nepal? How has your operations changed after the introduction of directives requiring full underwriting of issues and restrictions for issue manager to also be the underwriter?

The Underwriting business in Nepal is slowly evolving as issues with premium prices are slowly coming into practice. In general IPOs/FPOs with issue price at par value are subscribed in market until and unless there are problems in economic section or with a particular company. However, in some of issues at premium we have seen that them go under subscribed due to various reasons such as the Issue Price, Liquidity/Interest Rate situation, current Stock Market situation, Issue Size etc. The timing of issue may be debatable though Issue Price is usually fixed as per SEBON norms which is in line with the international practices, and the issue price whatever it be, will be always debatable between aspirant investors' and issuing company.

As the recent policy of SEBON has barred Issue Manager to be Underwriter in the same issue, finding Underwriter as Issuing Company's norms has been difficult, time consuming and costly. At times, we have also felt lack of coordination on Issue Promotion as well due to the involvement of various parties to the issue. Also, SEBON requires full underwriting of issue depending upon the rating, fundamentals and premium pricing which seems prudential from the regulators' point. Nevertheless, I see Underwriting business evolving more in coming days shaping this business to certain level.

Portfolio Management services

Why professional service like PMS is not growing in Nepal despite huge number of share market unaware investors?

Portfolio Management Service is slowly growing in Nepal. Actual growth can be assessed if regulator or some external agency publish the consolidated result of all PMS providers' data periodically, which has not been practiced yet. I suppose there should be healthy growth in these later years despite of challenges in Nepalese Capital Market given lots of specially focused PMS provider companies coming in. Also, huge lack of awareness prevails regarding Capital Market in Nepal including PMS. Efforts are required to put together from all stakeholders so that general people understand and learn to convert savings in to investments with the fundamental principles.

What marketing strategy are you using to attract the layman investors for your portfolio management services?

We are doing our business promotion and awareness raising programs regularly. We do general advertisements, general and focused presentations, awareness raising programs in different colleges, hospitals, other corporate etc. We do these kinds of programs out of valley as well as in coordination with branches. Nevertheless, PMS being sophisticated personal wealth product; word of mouth and personal relationship seems to be most powerful marketing tool.

General

Don’t you think there is high number of merchant bankers in Nepal? Since NIBL Ace is one of largest in size, how are you managing the competition?

Market has itself proved that number of Merchant Bankers are high in Nepal. Growing number of Merchant Bankers and decreasing business opportunities has resulted in stiff competition which has made the situation worse. Further more acute shortage of qualified/experienced manpower, inability to attract new talent within the sector, and low clarity in prevailing rules/regulations from Regulators' has been slowly signifying the gloomy future. Henceforth, at current situation we are trying to remain afloat with the help of our strong setup, qualified/experienced work pool, and the business size. We have been focusing on more quality service with customer focus integrating new product introduction/innovations.

Out of 13.22 lakh demat accounts, what is NIBL Ace’s market share? How have you managed to stay at the top? What are your core strengths?

As of now we have crossed 1.6 Lakhs DeMat Accounts and we have been able to maintain almost 12 to 12.5 percent market share. For this, I would say that it’s the quality of service we provide, our extensive coverage including NIBL’s branches and our dedicated branches, response to customers, and innovation along with DP services such as SMS service etc. which has helped us to remain as the first choice amongst customers.  Also, we have dedicated DP department with almost 15 manpower, dedicated DP service areas, and own dedicated 7 locations including Head Office at Lazimpat focusing on the DP services.

As per the new directives, the dividends are now distributed directly to bank accounts of respective demat accounts. However there are still a lot of investors who haven’t dematerialized their shares, and even among the ones who have, they haven’t updated the bank accounts. In such case what would be the right course of action?

First of all, one should DeMat their shares properly without fail and should update Bank Account in their DeMat Account. After they update their Bank Accounts in DeMat Account they should track whether their Cash Dividend has been credited to their Bank Accounts or not. Some companies might have printed Dividend Warrant after specified period and for older FYs Warrant might have got printed; in such case you should contact to RTS or the Company for such warrants.

Is there any prospects for NIBL Ace to issue IPO?

As of now, we are not discussing about it; but in future if regulatory requirements require so or if our peers opted for the same, we may also think about it.

How is your perception towards SEBON’s regulation? Is it supporting your sustainability or creating hindrance?

SEBON has been very active in recent years and has come up with lots of policy measures for the development of the Capital Market. Though what we feel from the Merchant Bankers' and Fund Managers' perspective is that policies of SEBON comes up without much interaction among stakeholders resulting in less clarity and confusion on operations side. I am quite hopeful that SEBON takes extra step on clarifying such policies with adequate engagement with stakeholders for the further development of the market.

What is your view on present market condition? Isn’t it right time for new investors to enter in the market?

Market has been witnessing the long bearish trend after it reached its highest mark some couple of years ago. We have seen almost 38% correction from the highest point and has struggled to increase after long time sideways. However, significant upward movement has not been evident in the market to start the bullish trend due to poor investors' sentiment along with dilemma over liquidity/interest rate ease and government policies towards the capital market. Though, looking after the fundamentals of the selected companies and overall valuation of the market after long correction; one can enter the market in gradual manner betting on fundamentally sound companies.