Sebon guidelines for share structure of merged firms

The capital market regulator is working on bringing in new regulations regarding the determination of share structure of the merged public companies. As the merger and acquisition (M&A) of various banks and financial institutions has been gaining momentum since some time back, Securities Board of Nepal (Sebon), the securities market regulator, has also felt the need for introducing a new regulation that will clarify how the share structure of the merged companies has to be determined.

"Sebon is doing internal homework on the regulation for the merged companies regarding the determination of share structure," said Niraj Giri, director of Sebon. "There is a need for clarifying how the merging companies will distribute the shares to the common shareholders so that the minority shareholders' interest is not damaged," he added.

There is no clear-cut rules set by any authority that dictates how the share should be distributed in case of the merger. Since Sebon is the apex body to regulate share market, the responsibility of preparing the guidelines regarding the matter falls on it. Moreover, most of the banks and financial institutions that are in the process of merger are listed in the secondary market. Before the merger is accomplished, the companies need to finalise the share structure. If both the merging companies have issued shares to the public then determining the new share structure has to be more carefully done so that the shareholders of the two entities will not feel duped.

There have already been four mergers of the financial institutions have taken place in the history of Nepali financial institutions. The recent merger is the one between class `A' financial institution Nepal Bangladesh Bank and Nepal Sri Lanka Merchant Banking and Finance Ltd that took place last month. Apparently, the shareholders of NSLMB are entitled to get the shares of NBBL in the 2:1 proportion that is for every two units of NSLMB's shares the shareholders will get one unit of NBBL's share.

Both the fiscal and monetary policies for the present fiscal year has encouraged merger of financial intermediaries such as banks and financial institutions (BFIs). The central bank specially has made it clear that it will support the merger of financial institutions rather than opening of new banks and financial institutions in the present scenario that has been crowded with the banks and financial institutions. The fiscal policy had even introduced some incentives to encourage mergers. The merger is supposed to facilitate the capital requirement of the financial institutions and reduce their operational costs as well along with creating space in the crowded financial institutions.

Source:
tht