Door opens for Agricultural Dev. Bank IPO

The Agricultural Development Bank Limited (ADBL) has named its issue manager Ace Development Bank as underwriter of its ordinary share issue. It has opened door for ADBL to get approval from Securities Board of Nepal for issuing shares.

The ADBL is working to issue ordinary shares worth Rs. 960 million which is the largest ever initial public offering (IPO) in the country. "The ADBL board on Nov. 10 decided to award the job of underwriting the ADBL's shares to Ace as its quoted fee was lower than its rival NMB Bank," said a senior ADBL official. Ace had quoted Rs. 775,000 against Rs. 960,000 by NMB, added the official.

The underwriter promises to purchase the shares if the public doesn't buy them in the amount desired by the issuing company. Although the bank had called for quotations from seven merchant bankers including Elite Merchant Banking, Citizen Investment Trust, Vibor Development Bank, NIDC Capital Markets and Development Credit Bank besides Ace and NMB, these two were the only takers for the underwriting contract. SEBON, the regulatory body of the stock market, had delayed giving permission to the ADBL to go for an IPO for its failure to have its shares underwritten as per the SEBON directive. The SEBON had also sought more disclosure about its financial status.

As per the directive, any company going for an IPO should ensure underwriting of half of the total shares to be issued. Only companies that have received a license from the board can underwrite the shares. The ADBL had difficulty finding merchant bankers to underwrite its shares worth a whopping Rs. 480 million with the central bank preventing B and C class financial institutions from underwriting more than 20 and 10 percent respectively of the primary shares. Nepal Rastra Bank (NRB) resolved the problem by issuing a fresh directive on Oct. 30 freeing all classes of financial institutions from this restriction. "We could not have been able to underwrite the shares as per the SEBON directive if NRB had not issued a new directive removing the barrier on underwriting," said Siddhant Raj Pandey, chief executive officer of Ace. "The provision of underwriting 50 percent of the total shares is worthless as it only increases the expenses of the issuing bank."


ADBL officials also said that they would have been compelled to pay a higher fee for underwriting as only a few merchant bankers could compete in the bidding process as per the earlier NRB directive. ADBL officials said that the bank's board would decide to approach SEBON within a day or two after meeting the required criteria. SEBON spokesman Niraj Giri said that the ABDL was most likely to get its approval the next time as it had ensured underwriting as per SEBON directives. "The disclosure related prerequisites are not so big problems," he added. The ADBL is issuing 30 percent of the shares to the public. With this IPO, the stake of the government in the ADBL will remain at 55.86 percent. The bank issued 14.14 percent of its shares to the public two years ago, especially to those who had been clients of the ADBL once.

Source: 
ekantipur.com