The permission will most likely be given early next week, according to a high-ranking Sebon official, as Nepal Rastra Bank, the central monetary authority, and the Lotus Finance have made requests along that line.[break]
If the Sebon allows the finance company to return the money back to the public, it will be first such case in the country´s IPO history, Sebon said.
“Once the decision is taken along that line, whoever raised the money will have to return it back to public investors with interest earned till date,” the official said on condition of anonymity.
Prior to the launch of the IPO, Lotus Finance had appointed Civil Capital Market Limited as its share issue manager and underwriter. “Since Civil Capital has parked the money raised from IPO in a bank account, whatever earned in interest so far and the principal amount will have to be returned back to investors,” the official said.
Lotus had launched its IPO on June 10 last year, during which the finance company was able to raise only Rs 11.31 million of the targeted Rs 80 million.
Following this, Lotus approached Civil Capital and asked it to keep its promise by purchasing 50 percent of the shares worth Rs 40 million. The request was made based on the agreement signed between the two prior to the launch of the IPO. But Civil denied.
It instead wrote a letter to the 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 in future.
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 from promoters of the finance company 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 injecting their part of money.
“Our promoters only said they could not arrange the funds immediately and would make their part of contribution by mid-July 2013 when the finance company has to meet the minimum regulatory capital requirement of Rs 200 million. The promoters even changed the date to mid-April 2013 after pressure was built on them,” Samaj Prakash Shrestha, CEO of Lotus Investment Finance, said.
At that time, the 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. However, Nepal Rastra Bank ruled in favor of Civil and suggested that it be allowed to return back the money to public investors.
Later, the finance company said a group of investors had expressed interest in purchasing all the shares that were not subscribed by the public. “But they (investors) later backed as they could not arrange funds,” Shrestha said.
“We are now mulling over re-launching the IPO or merging with another institution as we have to meet the minimum regulatory capital of Rs 200 million by mid-July.”
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