Trading of Prabhu Bank shares put on hold

- Post Report, Kathmandu

Oct 5, 2016-

Securities Board of Nepal (Sebon), the securities market regulator of the country, has directed Nepal Stock Exchange (Nepse) to halt the trading of shares of Prabhu Bank, stating that the shares of the bank are not yet registered at the board. 

According to a press statement issued by the regulator on Tuesday, Prabhu Bank, after completing its merger with Grand Bank, had not registered the shares of the merged entity at Sebon. 

The board’s decision came a day after Nepse started the trading of shares belonging to then Prabhu Bank owners.

Prabhu and Grand received final approval for merger from the Nepal Rastra Bank (NRB) on January 29. The two institutions formally began joint operation as Prabhu Bank on February 12, after the two agreed on a swap ratio of 121.45:65.58. The swap ratio shows every 100 units of Prabhu stocks generated an extra 21.45 units of shares in the merged unit, while every 100 units of Grand shares yielded only 65.58 units of shares in the consolidated unit.

The NRB had barred shareholders of the erstwhile Grand Bank from trading their stocks in the merged unit of Prabhu Bank, stating “losses of Grand are yet to be recovered”.

It is a general practice here to suspend stock trading of listed companies that have formally announced consolidation plans. As per this practice, Nepse suspended stock trading of both the banks after they officially declared their merger plan. But stock trading of the merged unit generally begins right after the consolidation process is over.

But that did not happen in the case of Prabhu and Grand, as the NRB denied granting such permission citing “reserve loss of Grand is yet to be recovered”, a source at the central bank told the Post on condition of anonymity.

However, the NRB recently revised its own decision and allowed shareholders who held stocks of Prabhu Bank prior to the launch of merger process to trade their shares, without granting similar permission to those who owned shares in Grand Bank. 

On Tuesday, Sebon directed Nepse to discontinue the practice of allowing one company engaged in the merger process to trade their shares. This effectively means all disputes and confusions surrounding the merged unit must be settled before resuming trading of shares on the stock market.

Prior to the merger, Grand Bank had suffered huge financial losses because of high exposure to the real estate market when property prices were at their peak. As a result, the bank’s capital adequacy ratio, which gauges a financial institution’s strength to absorb shocks and ability to extend loans, had dropped to as low as 2.55 percent. This ratio was way below minimum regulatory requirement of 10 percent for commercial banks at that time.

Published: 05-10-2016 08:06

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