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FPOs fail to attract investors

2018-07-03

With stocks on the downward path in recent months, attraction among follow-on public offering (FPO) among investors has also waned. 

Three recent FPOs have received lukewarm response from the public. While the FPO of Butwal Power Company Ltd (BPC) and NMB Bank Ltd remained largely undersubscribed, the ongoing offering of the state-owned Nepal Bank Ltd is likely to meet similar fate.

After public and other investors showed reluctance to purchase shares of BPC, shares that remained unsubscribed were bought by their underwriters who had pledged to purchase unsold shares. 

The under-subscription of the FPO of BPC contradicts the trend in the capital market where public issues have been oversubscribed by multiple times. Only 70 percent of BPC's shares up for sale were subscribed by the investors. Nearly 1.16 million units of shares worth Rs 580.07 million went' unsubscribed even after the BPCL extended the deadline for applying shares. Eight underwriters have purchased the unsold shares. 

The company had fixed Rs 401 premium on the share's with face value of Rs 100.

The case is similar with the offering of NMB Bank Ltd. As the subscription of the shares floated under the FPO received frosty reception from public in the first round, the company is now expecting the institutional investors to get hold of the unsold shares in the second round. However, institutional investors also do not seem much interested in buying shares of the commercial bank. Out of 11.42 million units of shares up for sale at Rs 333 per unit, only around 65 percent has been subscribed so far. 

The bank was hoping to raise Rs 3.8 billion from the IPO.

According to Citizens Investment Trust, the issue manager of the NMB Bank's FPO, 7.45 million units of shares worth Rs 2.48 billion has been subscribed so far. The company has extended the deadline till July 12 and also allowed institutional investors to buy the shares that were not purchased by the public in the first stage.

Nepal Bank Ltd is also struggling to sell its shares under its FPO plan. The offering of 17.68 million units of shares at per unit price of Rs 280 has not drawn encouraging response. The commercial bank plans to collect Rs 4.95 billion from the offering. The FPO is scheduled to be closed on Tuesday with a possible extension of 30 days to allow institutional investors to buy shares.

Analysts say that the decline of prices in the bearish stock market was the reason behind under-subscription of recent public offerings which otherwise would sell like 'hot cakes'.

“When share prices of these companies have come down to the same level in the secondary market, who would bother to buy them,” a stock broker said, requesting anonymity as the Securities Board of Nepal (Sebon) has restricted them from making any comment related to the market to the media.

“Investors believe that the shares will be in excess supply in the stock market when they get listed which means the price will fall further,” he added.

For example, the price of the BPC has fallen to Rs 436 compared to the price of Rs 501 it had set for the per unit share for FPO five months ago. The last traded price of Nepal Bank Ltd's share was Rs 284 per unit compared to Rs 280 that the commercial bank is offering. NMB Bank has set its per unit share price at Rs 333 while the commercial bank's share was last available in the stock market at Rs 340.

Source: My Republica