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Upcoming Right Share Issues in Nepal

Roberto worked as a research analyst for a stock brokerage company and has been writing about the Nepali stock market since 2013.

Companies Issue Right Shares to Raise Additional Capital

This additional capital can be used for various purposes including but not limited to business expansion, acquisition and even to pay debts. Sometimes, like in the case of Nepali banks and financial institutions, right shares were issued to increase the paid-up capital as regulatory requirement.

But as of FY2020-21 (Nepali FY2077-2078), banks and financial institutions are no longer allowed to use rights issues as the first means to raise capital. They must, first, opt for appropriate mergers and acquisitions. Fortunately, there are other companies which are not restricted to offer right shares.

upcoming-right-share-offerings-nepal

Have You Applied For Right Shares?

Upcoming Rights Issues Nepal

Upcoming Right Share Issues (Nepali Fiscal Year 2077-78)

S.N.CompanyUnitsRatioAmountBook Closure DateStatus

1

Civil Laghubitta Bittiya Sanstha Limited (CLBSL)

1,141,140

1:1 (100%)

Rs. 114.14 Million

29-Jun-20

Offering from Aug 9 - Aug 30, 2020

2

Api Power Company Limited (API)

5,670,000

100:47.619 (47.62%)

Rs 567 Million

TBA

Approved by SEBON, Offering Date TBA

3

Hydroelectricity Investment and Development Company Limited (HIDCL)

110,000,000

1:1 (100%)

Rs 11 Billion

TBA

Pending SEBON approval

4

Ngadi Group Power Limited (NGPL)

3,275,000

10:3 (30%)

Rs 327.50 Million

TBA

Pending SEBON approval

5

Barun Hydropower Company Limited (BARUN)

2,551,500

1:1 (100%)

Rs 255.15 Million

TBA

Pending SEBON approval

6

Samriddhi Finance Company Limited (SFCL)

3,639,606

1:2 (200%)

Rs 363.96 Million

TBA

Pending SEBON approval

7

Nepal Finance Limited (NFS)

1,697,506

1:1.25 (125%)

Rs 169.75 Million

TBA

Pending SEBON approval

8

Arun Valley Hydropower Company Limited (AHPC)

9,330,123

1:1 (100%)

Rs 933 Million

TBA

Pending SEBON approval

9

Excel Development Bank Limited (EDBL)

2,433,363

10:3 (30%)

Rs 243 Million

TBA

Pending SEBON application

Source: Securities Board of Nepal and minutes of individual companies' Annual Shareholders Meeting

How To Apply For Right Shares?

In order to apply for rights issues, one has to be a shareholder of the company. What determines if you are a valid stockholder? Well, if you hold at least 1 share (or even a fraction of a share) before the announced book closure date, you are eligible to apply for right shares of the company.

When is the book closure date for the right shares?

Typically, the book closure date is 7-14 days before the issue starts. "Book Closure" day is the day when the company closes its financial books so you should have bought the shares at least 1 trading day before the book closure day. The announcement for exact date will be published on the website of Nepal Stock Exchange (NEPSE) and also on a daily newspaper.

How will the stock price be adjusted after rights issue?

On the book closure date, the price of the stock will be adjusted in proportion to the right shares issued. We can calculate the adjusted price with the following formula:

For example, if the Last Traded Price (LTP) of the stock was Rs 400 and it is issuing 50% right shares at Rs 100 per share, the adjusted price will be determined as follows:

(400 + 100 × 0.5) divided by (1 + 0.5)

= (400 + 50) / (1+0.5)

= 450/1.5

= Rs 300

Please note that 50% is 0.5 in fraction.

Take The Following Quiz to Check if You Can Determine The Adjusted Price After Rights Issue

For each question, choose the best answer. The answer key is below.

  1. NLG Insurance is issuing 60% right shares. The last closing price of the stock was Rs 900. The adjusted price will be:
    • Rs 650
    • Rs 560
    • Rs 600
    • Rs 625
  2. Api Power Company will be issuing right shares in 100:47.62 ratio. If the LTP on the last trading day is Rs 125...
    • the price after right adjustment will be Rs 116
    • the price after right adjustment will be Rs 120
    • the price after right adjustment will be Rs 118
    • the price after right adjustment will be Rs 114
  3. If HIDCL issues 1:1 right share and the LTP is Rs 150, the adjusted price will be:
    • Rs 120
    • Rs 215
    • Rs 135
    • Rs 125

Answer Key

  1. Rs 600
  2. the price after right adjustment will be Rs 116
  3. Rs 125

Interpreting Your Score

If you got 0 correct answers: Well tried! You might want to go through the above formula once again.

If you got 1 correct answer: Well tried! You might want to go through the above formula once again.

If you got 2 correct answers: Not bad! See the adjustment formula once again and you're all set.

If you got 3 correct answers: Congratulations! You are pro at this!

What are the procedures to apply right shares?

Applications for right shares can be done from any C-ASBA approved Banks and Financial Institutions. Alternatively, it can also be done through MeroShare (just the way IPOs are applied). In MeroShare, you will be able to see the option to apply only if you were a stockholder before the book closure date.

RELATED: If you had invested Rs 1 lakh in Nepal stock market 5 years ago, this is how much you would have made.

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

Did you learn about the right shares? Any questions or comments? Drop below!

Bryant Edwin Caveness on August 01, 2020:

Yes, thank you.