Roberto worked as a research analyst for a stock brokerage company and has been writing about the Nepali stock market since 2013.
Nepal Infrastructure Bank Limited is set to be a mammoth investment opportunity in the Nepali stock market. In the coming months, it is going to issue its initial IPO shares worth Rs 8 Billion in the capital market. It will be the largest IPO in the history of Nepal with 80 million shares issued to the general public.
SEBON granted approval to NIFRA on December 27, 2020 for the IPO. It will be issued from January 15 - January 19, 2021. If all shares are not subscribed within the 4 days, the issue will continue for an additional 15 days.
Nepal Infrastructure Bank (NIFRA) was incorporated in 2017 with promoter ownership of well-known commercial banks, microfinance companies, prominent businessmen and even the Nepal Government. It received its operating license from the central bank in 2018. As per Banks and Financial Institutions Act 2017, the bank was established to invest in national infrastructure and development projects so as to quickly and more efficiently disburse needed capital for the same.
What Are the Objectives of Nepal Infrastructure Bank?
Is It the Same as a Commercial Bank?
No. The primary objective of Nepal Infrastructure Bank is to provide required capital to the country’s infrastructure projects, roads, bridges, irrigation systems, and hydropower projects with ease. While it’s also possible to get investment from commercial banks, NIFRA has different regulations and risk provisions set by the central bank, such that it can easily invest without any restrictions other commercial banks face.
Deposits and capital fund of the bank can act as investment for the projects, and since these deposits are not accepted from the general public, the bank can easily bear additional risk without harming the deposit of the citizens. It can also provide loans for long terms and issue corporate debentures to raise additional funds for national-pride projects.
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Paid-up Capital and Share Ownership of Nepal Infrastructure Bank
The current paid-up capital of Nepal Infrastructure Bank is Rs 12 Billion. As per the BAFIA Act 2017, all infrastructure development banks should have paid-up capital of Rs 20 Billion. To comply with this paid-up capital requirement set up by Nepal Rastra Bank, NIFRA will raise the needed Rs 8 Billion through IPO.
Current Investors of Nepal Infrastructure Bank
- Nepal Government: 16.67% (to be diluted to 10% after the IPO)
- Commercial Banks: 34.82% (to be diluted to 20.89% after the IPO)
- Other BFIs: 0.08% (to be diluted to 0.005% after the IPO)
- Other Public Corporations: 31.62% (to be diluted to 18.97% after the IPO)
- Private Investors: 16.81% (to be diluted to 10.0875% after the IPO)
Board of Directors of NIFRA
Chandra Prasad Dhakal
Ram Krishna Khatiwada
Shareholding Structure After The IPO
Can be traded in NEPSE
Recent Financial Reports
The bank has remained in net profit ever since its establishment two years ago. The current paid-up capital of Rs 12 Billion has been mostly deposited in other banks and financial institutions from where it has been generating interest. Its Balance Sheet size has grown to Rs 14.23 Billion as of the recent quarter, and managed to attract corporate deposits of Rs 250 Million and disburse Rs 90 Million in loans and advances.
Other Key Market Indicators of Nepal Infrastructure Bank
- Net Profit: Rs 180 Million (1st Quarter FY 2020/21)
- Net Profit: Rs 847 Million (4th Quarter FY 2019/20)
- Paid-up Capital: Rs 12 Billion
- Earnings Per Share (EPS): Rs 7.09 (FY 2019/20)
- Net Worth Per Share: Rs 113.62 (FY 2019/20)
The bank has published an offer letter with IPO date from Jan 15 - 19, 2021. 80 million shares worth Rs 100 each are going to be issued at the paid-up value. NIBL Ace Capital, an investment bank licensed by SEBON, is appointed as the issue manager.
- Shares set aside for Mutual Funds: 4 million units worth Rs 400M
- Shares set aside for the bank's employees: 160,000 units worth Rs 16M
- Shares for General Public: 75.84 million units worth Rs 7.58B
How the company aims to utilize the raised capital
As per the offer letter, the bank aims to spend Rs 4.32B in disbursing loans to infrastructure and development projects. The remaining 3.68B will be spent in various investments like government bonds, capital market, debentures and such.
The credit rating for the IPO was done by ICRA Nepal Ltd. As per the company, the rating assigned is [ICRANP] IPO Grade 4. This means that the company has below-average fundamentals and accompanies a moderate risk of default.
Tentative Allotment Schedule and Module of NIFRA IPO
There has been a huge influx of investors in primary and secondary market in the recent days. The IPO market of Nepal has been attracting almost 1 million investors. If this trend is to continue, this particular IPO will attract even more applicants. We cannot rule out of the possibility of even 1.5 Million (or 15 Lakh) applicants for the IPO of Nepal Infrastructure Bank.
If 1.5 Million individual applications are received, the allotment will probably look like below:
- Number of Issued Shares: 75,840,000 (general public only)
- Number of Applicants: 1,500,000
- Shares allotted per Applicant: at least 50 units with some getting 60 units via lottery
How Many Shares to Apply for
As per Securities Issue and Allotment Guidelines, every applicant must be allotted at least 10 units whenever possible. Assuming 15 Lakh applicants, there will be enough shares to be allocated 5 times the usual 10. The rest of the shares will be allocated via lottery method and some investors can expect to get 60 shares.
If this is the case, one should apply for at least 60 shares. To be on the safe side, in the event the IPO attracts less than 15 Lakh applications, it is better to apply for 70-80 units. Applications should be made for a multiple of 10 shares, which means we can apply for 70, or 80, or 90 units but not 75, or 85, or 92 units.
It might also be possible that not all applicants will apply for 60-70 units. In that case, even more than 100 units is possible. Personally, I would apply for 150 units and advise everyone to do the same.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2020 Roberto Eldrum