SEBON gets tough on rights shares

The Security Board of Nepal (SEBON) will allow companies to issue rights shares only after the basic shareholders (bigger shareholders) have purchased the required number of rights shares. The basic shareholders are those who own more than 1 percent of the stock in companies whose paid-up capital is more than Rs. 250 million and those who own more than 5 percent of the stock in companies whose paid-up capital is less than Rs. 250 million, according to the Company Act.

SEBON chairman Surbir Poudel said that the stock regulator in a directive issued last week took such a move to tackle the promoters' tendency of not purchasing rights shares especially if the company was incurring loss.

The promoters of Nepal Development Bank, which is likely to be liquidated, didn't purchase rights shares although they urged ordinary shareholders to purchase as much as they liked. Amongst the promoters, only Uttam Pun and Sananda Shrestha from their respective groups had purchased a few rights shares of NDB. "NDB's case is an eye-opener for us," said Poudel.

The crisis-ridden bank had managed to generate only Rs. 80 million although it sought to collect Rs. 320 million through rights shares issuance. The ordinary shareholders are now agitating asking for their money back.

President of Nepal Bankers Association Sashin Joshi, however, was of the view that basic shareholders should also be given freedom to decide whether to purchase rights shares or not. "The case of NDB should not be generalized to end an individual's right to choose," he said. He was, however, of the view that there should be a full disclosure.

As per the new directive, SEBON has made a new provision that if all the rights shares are not purchased, the remaining shares should be sold through auction. "The promoters of some companies were found to have shared the remaining shares among themselves secretly depriving prospective investors the opportunity to buy rights shares," Poudel said. "The new provision allows all to compete for additional rights shares, which also contributes largely to increasing capital in the company."

With financial institutions required to increase capital as per the new Nepal Rastra Bank's rule, many are issuing rights shares for the purpose. SEBON has also barred share applicants from paying through bank draft during initial public offering (IPOs) in places where collection centres exist. "But people can send the forms through draft where there are no collection centers," said a SEBON official.
Source: Ekantipur