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. As the name suggests, only existing shareholders of the companies can apply for rights issues. This additional capital can be used for various purposes, including 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 a 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, other companies are not restricted from offering right shares.
Have You Applied For Right Shares?
Upcoming Rights Issues Nepal
| S.N. | Company | Units | Ratio | Amount | Book Closure Date | Status |
|---|---|---|---|---|---|---|
1 | Citizen Investment Trust (CIT) | 13,592,592 | 100:82.84 (82.84%) | Rs. 1.36 Billion | 29-Dec-2020 | Offering from Aug 9 - Aug 30, 2020 |
2 | Narayani Development Bank Limited (NABBC) | 656,169 | 1:1 (100%) | Rs 65.61 Million | TBA | Pending SEBON approval |
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 | Arun Valley Hydropower Company Limited (AHPC) | 4,665,062 | 100:50 (50%) | Rs 466.50 Million | TBA | Pending SEBON approval |
7 | 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.
- 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
- 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
- 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
- Rs 600
- the price after right adjustment will be Rs 116
- 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.
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.
