Public shares issued increases

Public shares issued increases
ekantipur, 11-Jan-09
PRITHVI MAN SHRESTHA

Despite sluggishness in the share market, with the stock index sharply declinging from 1,100 points to around 700 points over the last four months, the number of financial institutions seeking share issuance approval has continuously risen.

As many as 16 banks and financial institutions received approval from the Security Board of Nepal (SEBON) to issue shares worth Rs 4.2 billion during the first six months of current fiscal year. The SEBON granted approval for 19 companies to issue share worth Rs. 2.71 billion during the same period last year.

According to SEBON, 30 other companies are already on the waiting list to receive approval for floating shares worth Rs. 7.05 billion.

SEBON director Niraj Giri said that the companies were not hesitating to issue shares despite the recent downturn in the country's stock market because most of the applicants were banks and financial institutions.

"As people trust in banks, the financial sector remains strong, and we expect people to continue investing in their shares," he said.

All the companies receiving approval so far this year were financial institutions, and most that received such approval last year were also financial institutions.

Amongst the banks, Siddharth Bank received approval on January 7 of this year to issue Initial Public Offerings (IPOs) worth Rs. 300 million. Three other new banks, Citizen, Prime and Sunrise, as well as Vibor Development Bank, are also awaiting SEBON approval to issue IPOs worth Rs. 1.22 billion.

"The response to their IPOs will also show the confidence of investors' in the share market," Giri said.

The number and amount of shares issued increased last year, and the trend is continuing this year too.

According to SEBON, as many as 64 companies issued shares worth Rs. 10.66 billion last year. Likewise, 46 companies are expected to issue shares worth Rs. 11 billion this year.

Giri said that number of shares issued increased as the Nepal Rastra Bank (NRB) directed all financial institutions to increase their capital base. "So, they have been issuing various types of shares to increase their capital base," he added.

As per the NRB directive, the banks are required to increase their paid up capital to Rs. 2 billion, development banks to Rs. 640 million and finance companies to Rs. 200 million by 2011, for new banks, and 2014 for older banks. The directives are being met, proved by the fact that most of the older financial institutions have been issuing right and debenture shares and new ones IPOs.

Among the 16 financial institutions receiving approval for share issuance this year, 13 are currently going to issue right shares.

As many as 49 companies received approval for issuing right shares, 18 companies for IPOs, five for debenture and 12 for bonus shares in the last fiscal year. Most of them are financial institutions.

President of Nepal Bankers' Association, Radhesh Panta, holds the view that people trust in the banking sector because of its transparency, which was the main reason behind large investment in the share market recently.

"The growth in the number of financial institutions and their compulsion to go public, as per the NRB regulation, is fueling the investment in shares," he said.

But, former SEBON chairman Dr. Chiranjeevi Nepal claimed that the easier provisions made through five regulations introduced during his tenure in the office mainly contributed to the high rise in the issuance of shares last year.