FIs not issuing shares 10 yrs after opening

As many as 24 financial institutions (FIs) have not issued ordinary shares in contravention of Nepal Rastra Bank regulations. As per NRB regulations, they are required to go for an initial public offering (IPO) within two years of the establishment of the company.

Five finance companies have, however, not bothered to issue ordinary shares even after 10 years of their establishment. Himalaya Finance Company, a national level finance company, and regional finance companies including Mercantile based in Birgunj, Investa based in Birgunj, Arun based in Dharan and Multipurpose based in Rajbiraj have failed to make IPOs since a decade.

As per the latest directive issued to the banks and FIs, those failing to abide by the above provision must complete making public

their financial details for the purpose of issuing IPOs by appointing an issue manager by mid-April this year. "They must complete allotting public shares by mid-October this year," said Lok Bahadur Khadka, executive director of NRB. He said that they continued to elude the central bank by showing many problems and some saying that they had already appointed an issue manger only to be left out from being taken action against. "The set deadline is the last chance given to them," he said. "NRB will take action against the financial institutions not abiding by NRB rules and regulations."

He said that the central bank could take a range of actions as per the degree of the offence of the existing rules and regulations such as imposing fines, blocking certain transactions and finally suspending the license. Sources at the central bank said that some financial institutions have been reluctant to go for an IPO as they have been controlled largely by a single family."There is a share of single family in the FIs such as Investa and Mercantile which stands at around 70-80 percent," source said. "They don' want to lose control of their family in the institution and don't want to share the profits with the public."

However, the banks and FIs cannot take dividends and bonus shares without going for an IPO as per the Bank and Financial Institution Act. "Such an attitude on the part of the promoters of some FIs has been creating just deadlock in the FIs," the source said. Khadka said that the lack of corporate culture was the main reasons behind the FIs not going public.

Source: ekantipur