E-Kantipur

KATHMANDU, DEC 17 -

The recapitalisation plan for Nepal Bank Limited (NBL) is all set to take off, with the Nepal Rastra Bank (NRB) board approving the project that seeks to raise the capital of the troubled bank by issuing rights shares.

After studying an NBL proposal on the recapitalisation plan, the central bank gave a go-ahead to the oldest bank to raise its paid-up capital to Rs 4 billion from the Rs 380 million at present.

“The rights will be issued on a 1:9.5 ratio, which means each shareholder will have to put money 9.5 times of his/her current stake to meet the set target,” a senior NRB official said.

The bank still has a negative net worth Rs 4.58 billion as of the first quarter ending of the current fiscal year.

That means resources gained from rights share issuance will not be enough to fill the gap of capital requirement. Further, it has to raise it to the level so that the capital adequacy ratio will be at least 10 percent.

As per the recapitalisation plan, the bank will manage the capital needed by selling and giving its fixed assets on lease as well as through its retained earning.

“We will adopt three methods simultaneously to manage our assets,” said Maheswor Lal Shrestha, the coordinator of the NBL’s management committee. “We will make outright sales of some, while some will go for long-term lease or event rent.”

The first bank of the country plans to generate an additional Rs 2.5 billion by selling, leasing and renting its assets. Similarly, it plans to retain about Rs 2 billion from profit in the coming year. “If things go as planned, we will increase our capital adequacy ratio to 12 percent by mid-July 2015,” Shrestha said. 

The NBL management had forwarded the recapitalisation proposal to the central bank a few months ago. In the proposal, they had figured out alternatives like rights share issuance and public offerings at premium price. “Of the various alternatives, we found rights share issuance very appropriate,” said an NRB official. 

The bank’s management committee has already begun the process of issuing the rights shares. The NBL expects good progress by the end of the current fiscal year.

“We are currently holding discussions with stakeholders, including the Finance Ministry and the NRB, in this regard,” Shrestha said.

However, looking at the capital market, which is bearish for the last three years, there are doubts on whether shareholders of the NBL will be interested in investing in the bank influenced by trade unions. Even after a decade-long financial reform progarmme, the bank is struggling to become healthy due to its inadequate capital structure.

The NRB has taken the bank under its direct control after the exit of the foreign management some years ago.

However, Shrestha believes that a large quantity of fixed assets all over the country will definitely lure its shareholders to subscribe to the rights shares. “The valuation of our fixed assets (land and building only) by independent engineers showed that they are worth about Rs 9 billion,” he said. “Definitely, it will attract shareholders in buying the rights shares at a par value of Rs 100.”

Posted on: 2011-12-17 10:20

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