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Noose tightens around NB Group

KATHMANDU, NOV 29 -

Buffeted by debt and pressured by regulators, NB Group is going through its most serious crisis. Police have filed a banking fraud case against the group’s promoter Laxmi Bahadur Shrestha for causing huge losses to the now defunct Nepal Sri Lanka Merchant Bank and Finance Limited (NSMBL).

During their heyday, the NB Group and its two main promoters, Laxmi Bahadur Shrestha and Jit Bahadur Shrestha, had so much influence that they could sway the central bank.

The group, which has interests in finance, hydropower, insurance and real estate is now losing its grip on its own companies. The reason is that the companies they have promoted are in big trouble due to the promoters’ imprudent style of doing business. The promoters borrowed money for themselves from their own banks using various ruses, but now they have been exposed. They have been getting away with their unscrupulous activities so far, but this time they have found themselves with their backs against the wall.

Although Laxmi Bahadur was not seen to be directly involved in providing loans worth Rs 350 million illegally from NSMBL to people in their circle before its merger with NB Bank, the arrest of NSMBL officials has revealed Shrestha’s involvement.

Nepal Police has filed a case in the Patan Appellate Court against Shrestha and 17 other promoters and loanees for banking fraud. However, NB Group, in a press statement on Thursday, said as the issue is under consideration in the court, nobody should make a comment on the issue.

At the same time, most of the family members of the group’s promoters have been blacklisted by financial institutions for defaulting loans, although they had used other people and companies as fronts. Being put in the blacklist means they can no longer sit on the board of directors in banks and financial institutions for three years as per the central bank’s directive.

Currently, the NB Group has a 14.5 percent stake in Nepal Bangladesh Bank and NCC Bank. IFIC Bank of Bangladesh is all set to purchase the shares of the Nepali promoters as the central bank has given the go-ahead to sell 32.4 percent of the shares to the Bangladeshi bank. “IFIC Bank is going to undertake a due diligence audit of NB Bank to determine the best value for its shares,” said NB Bank CEO Gyanendra Dhungana. “After the completion of the DDA, the purchase process will move ahead.”

After the sale of these shares, only the shares in the name of Laxmi Bahadur Shrestha and his brother Jit Bahadur Shrestha will remain as, under the Bank and Financial Institution Act, they cannot be sold for one year because the two have recently left the bank’s board. However, the shares in the name of the companies they have promoted can be sold. For this reason, the group will have virtually no say in the bank, according to a central bank official.

Meanwhile, Nabil Bank is auctioning the International Recreation Centre that the group had promoted for tourism and had put up as collateral for a loan. According to a source at Nabil Bank, Shrestha had borrowed more than Rs 200 million. “This loan was extended some four years ago, and we are auctioning the collateral,” said the source. “It seems he invested the money he had borrowed in real estate and failed to recover it with the slump in the realty sector.”

However, NB Group said it was natural for a corporate house to have loans to be repaid. Some of the groups investment failed to yield desired results, resulting in irregular repayment of loans in some cases, it said in its statement published in a newspaper.

Shrestha and his family members have also left the board of National Hydropower Company. After Shrestha was blacklisted, he was automatically disqualified from sitting on the board while his nephew Jen Shrestha resigned, according to a source at the Securities Board of Nepal (Sebon).

Initially, while establishing the hydropower company, the group’s stake was very high. However, at present, its stake is amounts to 20 to 30 percent, according to a Sebon source. “Once the lock-in period ended, the group sold most of its shares,” he said. A complaint against the promoters of the NB Group has been filed at Sebon charging them with misappropriating the loan borrowed in the name of the company while they were sitting on the board of National Hydro. The hydropower company has not paid any dividends to its shareholders.

Meanwhile, Harisiddhi Brick and Tile Factory, which the group had purchased from the government when it started the first round of the privatization process in the early 1990s, has also remained idle.

Shrestha was also found to have cheated prospective buyers of millions by saying that he would sell the land owned by the factory. The land, however, has been kept as collateral at NCC Bank. Although the bank has auctioned off part of the land, those who have purchased the plots have not been able to use them due to protests from locals.

Meanwhile, the status of NB Insurance is similar due to the misuse of premiums worth Rs 580 million for renting a house.

After it was found by the Insurance Board in the course of its investigation that rent had been paid in advance for three years although the property belonged to the director of the NB Group. The Insurance Board had taken action against the company and forced it to return the money.

Posted on: 2012-11-30 08:57


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