Merger not a priority for most financial companies- My Republica

Merger Word International Business Combination New Company

KATHMANDU, Oct 13: Most of the finance companies are planning to meet the recently raised minimum paid-up capital on their own.

The capital upgradation plans of finance companies submitted to Nepal Rastra Bank (NRB) shows most of the finance companies have given priority to distribution of bonus and rights shares in coming two years to raise their paid-up capital. Finance companies, which are unable to float such shares, are planning to go for merger and acquisition to meet the new capital requirement.

Only eleven out of 47 finance companies have said that they will go for merger to raise their capital base. Remaining companies have said that they will increase paid-up capital on their own.

The Monetary Policy for Fiscal Year 2015/16 requires BFIs to raise their minimum paid-up capital within two years. The new capital floor requires the national-level finance companies to increase their paid-up capital to Rs 800 million and finance companies with a license to operate in one to three districts to Rs 400 million.

"All the finance companies have already submitted their paid-up capital plans to the central bank. Around 75 percent of the finance companies are considering the options of issuing bonus and rights shares over the next two years to meet the new capital requirement," Saroj Kaji Tuladhar, president of Nepal Finance Institutions Association (NFIA) — the umbrella organization of finance companies in the country — told Republica.

The capital plans of most of the finance companies show that 11 companies plan to issue rights shares in fiscal year 2015/16 and 14 companies in 2016/17. All finance companies, except those who want to go for merger and acquisition, will issue bonus shares to their shareholders in the next two fiscal years. NRB has already announced that it will not allow bank and financial companies (BFIs) to distribute cash dividend to their shareholders. The move of the central bank is aimed at encouraging BFIs to distribute stock dividend instead of cash to raise their paid-up capital.

"Those who are contemplating merger and acquisition will start looking for the partners while those who want to grow organically will come up with bonus, rights or follow on public offerings in the coming two years," Tuladhar, who is also the CEO of Goodwill Finance Company Ltd, said.

Most of the finance companies will pursue merger with the same class, or 'C' class institutions, instead of going for the amalgamation with development banks or commercial banks, according to the bankers. Since the paid-up capital of finance company will be too little for capital-starved commercial banks or development banks, analysts says that 'A' and 'B' class institutions will have less incentive to pursue merger and acquisition with finance companies.

"Merger and acquisition will mostly be within the same category. Most of the companies can meet paid-up capital requirement through merger and acquisition within the same category," added Tuladhar.


Published on: My Republica, (Oct 13,2015)