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NRB for returning applicants’ money after Lotus IPO flops

KATHMANDU, NOV 08 - Nepal Rastra Bank (NRB) has said that the money paid by subscribers for shares of Lotus Finance during its initial public offering (IPO) should be returned. After the IPO was undersubscribed and underwriter Civil Capital Market refused to mop up the remaining shares, the Securities Board of Nepal (Sebon) had sought the central bank’s opinion for a way out of the predicament.

Lotus Finance had made an IPO worth Rs 80 million in June 2012, but only Rs 11 million worth of shares were subscribed. Civil Capital Market, which had underwritten 50 percent of the IPO amount, refused to buy the remaining shares, blaming the promoters, directors and employees of Lotus for not picking up the slack.

The central bank has described the reluctance of the promoters and directors of Lotus to buy the unsubscribed shares as lack of confidence in their own company, and advised Sebon that the money deposited by investors should be given back.

“Ordinary shareholders had to suffer losses when we allowed Nepal Development Bank (since then liquidated) to issue rights shares when its promoters and directors didn’t buy the shares themselves,” said a senior NRB official. “The blame for the Nepal Development Bank fiasco fell on us, and we don’t want that happening again; so we have suggested returning the money to the ordinary subscribers.”

The central bank’s suggestion matches what Civil Capital had been hoping Sebon would say. Earlier, the issue manager and underwriter had sought Sebon’s approval to return the money to the subscribers. “We were ready to buy half of the shares issued as per our commitment if the promoters and directors picked up the rest of the unsubscribed shares,” said Bhisma Raj Chalise, CEO of Civil Capital. “As the promoters, directors and employees of Lotus didn’t have faith in their own company; nobody will be ready to put money in it.”

The Securities Registration and Issue Regulation states that underwriters shall have the responsibility inclusive of their obligation to buy the unsold portion of the shares issued and make payment for them.

The underwriter had sought Sebon’s approval to return the money as per the provision of the Securities Issue Guideline which states that the subscribers’ money should be returned along with interest by the issuer and the issue manger if the shares are not allotted within a certain period as fixed by this bylaw.  

According to Civil Capital, only 738 applicants turned up to buy shares at the IPO of Lotus. This means the shares should have been allotted within 40 days. However, it has been four months and the applicants have not been allotted shares.  Investors these days don’t think the share market is such a great place to invest due to meagre returns. Meanwhile, public trust in financial institutions has plunged in the last three years following revelations that quite a few of them had engaged in unscrupulous activities.

Posted on: 2012-11-09 09:16

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