Lotus, Civil dispute over share underwriting likely to end soon

KATHMANDU, Dec 27, 2012

The six-month dispute between Lotus Investment Finance and Civil Capital Market over underwriting of shares that remained unsubscribed in an initial public offering (IPO) is likely to come to an end soon, as a group of investors has stepped forward proposing to purchase all the shares that were not subscribed by the public.

This proposal has now moved the ball on ending the conflict to the court of the Securities Board of Nepal (Sebon), which now needs to extend approval for the 68.69-million-rupee deal to take place.

“We (Lotus and Civil) have jointly filed an application at the Sebon requesting that the investors be allowed to purchase the unsubscribed shares,” Samaj Shrestha, CEO of Lotus Investment Finance, told Republica, without revealing identity of investors. Sebon has also acknowledged receipt of the letter.
“We will look into legal matters and come up with a decision soon,” Sebon Spokesperson Niraj Giri said.

If the deal materializes, the conflict between Lotus and Civil will come to an end once and for all.

This dispute between the two erupted after the IPO launched by Lotus on June 10 failed terribly, with the finance company raising Rs 11.31 million of the targeted Rs 80 million.

Based on the agreement signed by Lotus and Civil prior to the launch of IPO, Civil had agreed to purchase 50 percent of the shares worth Rs 40 million in case the IPO remained undersubscribed. But when the need arose, Civil denied to take the liability. Instead, it wrote a letter to Sebon, requesting that it be allowed to return Rs 11.31 million raised from the primary market to the public so that a fresh IPO can be launched again.

Civil Capital argues it was forced to take the step after promoters of the finance company denied forking out Rs 28.69 million that would have fallen short even if the company made its contribution.

The argument was based on the logic that promoters should also take the responsibility for the failure of the IPO and chip in the deficit amount. This simply meant the 80-million-rupee IPO would have been fully subscribed if Rs 28.69 million was raised in time, as the public had already contributed Rs 11.31 million and Civil had pledged to purchase Rs 40 million worth of shares.

Lotus, on the other hand, argues its promoters had never denied to inject their part of money. “They only said they could not arrange the funds immediately and would make their part of contribution by mid-July 2013 when the company has to meet the regulatory capital requirement of Rs 200 million. They even changed the date to mid-April 2013 after pressure began building on them,” Shrestha said.

At that time, Sebon had sided with Lotus and called arguments of Civil Capital “baseless”. It even said “allotted shares should have been purchased by Civil without making a fuss”, but failed to issue clear instructions as the existing law remains silent on the issue.

Although the latest proposal of investors may have come as disguised blessing for the undecided securities market regulator, possibilities of such rescuers coming to aid cannot be assured if similar episode repeats.

“For this we need to make some arrangements so that such disputes do not arise,” Giri said.

Source: Republica

NRB for returning applicants money after Lotus IPO flops

KATHMANDU, NOV 09 - 2012

Nepal Rastra Bank ( NRB ) has said that the money paid by subscribers for shares of Lotus Finance during its initial public offering (IPO) should be returned. After the IPO was undersubscribed and underwriter Civil Capital Market refused to mop up the remaining shares, the Securities Board of Nepal (Sebon) had sought the central bank’s opinion for a way out of the predicament.

Lotus Finance had made an IPO worth Rs 80 million in June 2012, but only Rs 11 million worth of shares were subscribed. Civil Capital Market, which had underwritten 50 percent of the IPO amount, refused to buy the remaining shares, blaming the promoters, directors and employees of Lotus for not picking up the slack.

The central bank has described the reluctance of the promoters and directors of Lotus to buy the unsubscribed shares as lack of confidence in their own company, and advised Sebon that the money deposited by investors should be given back.

“Ordinary shareholders had to suffer losses when we allowed Nepal Development Bank (since then liquidated) to issue rights shares when its promoters and directors didn’t buy the shares themselves,” said a senior NRB official. “The blame for the Nepal Development Bank fiasco fell on us, and we don’t want that happening again; so we have suggested returning the money to the ordinary subscribers.”

The central bank’s suggestion matches what Civil Capital had been hoping Sebon would say. Earlier, the issue manager and underwriter had sought Sebon’s approval to return the money to the subscribers. “We were ready to buy half of the shares issued as per our commitment if the promoters and directors picked up the rest of the unsubscribed shares,” said Bhisma Raj Chalise, CEO of Civil Capital. “As the promoters, directors and employees of Lotus didn’t have faith in their own company; nobody will be ready to put money in it.”

The Securities Registration and Issue Regulation states that underwriters shall have the responsibility inclusive of their obligation to buy the unsold portion of the shares issued and make payment for them.

The underwriter had sought Sebon’s approval to return the money as per the provision of the Securities Issue Guideline which states that the subscribers’ money should be returned along with interest by the issuer and the issue manger if the shares are not allotted within a certain period as fixed by this bylaw.

According to Civil Capital, only 738 applicants turned up to buy shares at the IPO of Lotus. This means the shares should have been allotted within 40 days. However, it has been four months and the applicants have not been allotted shares.  Investors these days don’t think the share market is such a great place to invest due to meagre returns. Meanwhile, public trust in financial institutions has plunged in the last three years following revelations that quite a few of them had engaged in unscrupulous activities.

Source: The Kathmandu Post