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Rights share issuance jumped 400% in last fiscal year

Rights share issuance jumped 400% in last fiscal year


KHATMANDU: Listed firms belonging to financial sector were under pressure in the last two fiscal years to raise their paid-up capital as per a directive of Nepal Rastra Bank. To meet this mandatory provision set by the central bank all the financial institutions chose to issue rights shares as a result of which rights share issuance significantly surged by nearly 400 per cent in the last fiscal year.

As per data maintained by Securities Board of Nepal (SEBON), in fiscal 2016-17 rights shares worth Rs 45.64 billion were issued against rights shares worth Rs 9.40 billion issued in the previous fiscal.  In fiscal 2015-16, a total of 37 companies issued rights shares where as the number jumped to 76 in fiscal 2016-17. Similarly, in fiscal 2014-15 rights shares worth only Rs 2.31 billion were issued by 22 listed firms.

Moreover, SEBON has already approved rights shares worth Rs 5.05 billion that will be issued very soon in the current fiscal year. As per the securities market regulator, another 17 companies are still awaiting approval to issue rights shares. Besides Shri Ram Sugar Mills and Api Power Company all the remaining 15 companies belong to the financial sector.

Similarly, insurance firms have also been asked to increase their paid-up capital by the Insurance Board (IB) within July 15 this year and a majority of them have planned to meet paid-up capital requirement by issuing rights shares.According to IB, most of the insurance firms that have submitted their capital plans to the board have proposed to issue rights shares.

According to officials at SEBON, companies listed in the financial sector — commercial banks, development banks and finance companies — issued rights shares in the last two fiscals.

Nepal Rastra Bank (NRB) had set a deadline for all the banks and financial institutions (BFIs) to increase their paid-up capital by the end of last fiscal. The BFIs issued rights share as a major tool to meet that requirement.

“BFIs had only two options to raise their paid-up capital. They either had to issue rights shares or go for merger and we can see that they chose to issue rights shares,” said Niraj Giri, executive director and spokesperson at SEBON.

Giri also informed that all those institutions that do not have the capacity to distribute bonus shares are keen to issue rights shares. “Due to low performance, all the institutions are not able to distribute bonus shares, hence rights share issuance was their best option,” he informed.