Stocks of two other companies on the ´Top 5 Gainers´ list of the Nepal Stock Exchange (Nepse) were also trading along the same line. Shares of Diyalo Bikas Bank were valued at Rs 92 each when the market closed for the day, while stocks of Zenith Finance Limited ended the day´s trading at Rs 98.[break]
In total, 26 percent of the 75 companies, whose shares were traded on Wednesday, saw their stocks hovering at below par value of Rs 100.
Does this trend ring any bell?
If you recall, the stock market was going through similar phase between mid-July 1998 and mid-July 1999, when 21 companies saw their shares trading at below par value level. During that period, shares of Himalayan General Insurance, for instance, listed at Rs 100 each, fell to as low as Rs 90, while stocks of Kathmandu Finance Limited fell from its original price of Rs 100 to Rs 89.
This inflicted heavy loss on investors as even those who had bought stocks at the original price saw the value erode.
After almost 14 years, the Nepse is walking the same line.
One of the reasons for this is companies´ inability to maintain good corporate governance, Shambhu Pant, spokesperson of Nepse, told Republica. For instance, shares of Lumbini General Insurance, which were trading at Rs 114 exactly six months ago, have now fallen to Rs 86.
Between this period, the company was found failing to settle claims in time, selling insurance products to its promoters on credit and issuing policies haphazardly without evaluating risks. On February 27, the Insurance Board - the insurance sector regulator, finally suspended its motor insurance transaction. This dealt a huge blow to the company which was generating more than 60 percent of its revenue by selling motor insurance products.
National Hydropower is another company which has failed to improve its corporate governance. The company, which has not submitted its audited financial report of the past two years, has also never given away dividends to its shareholders. As a result the market has punished it, with its share price currently standing at Rs 47.
Another reason why the share prices are falling below the par value level, according to Pant, is the practice of overvaluing them while floating them on the primary market. One example is that of Arun Finance which stamped a price tag of Rs 100 on each of its shares during the initial public offering, whereas actual per share net-worth hovered at Rs 70-72, Pant said.
Although it is common practice to add premium to value of shares - like in the case of Facebook - such companies should have future earning potential. Since companies like Arun Finance couldn´t carve a niche for itself in the market and conducted business like any other company, its shares, which were worth Rs 126 a year ago, are currently trading at Rs 39.
Yet there are exceptional cases as well.
Jyoti Bikas Bank, for instance, gave dividend of 8 percent from net profit of last fiscal year and has been auditing its financial reports on time, yet its shares have fallen below par value and were trading at a band of Rs 76 and Rs 78 on Wednesday. A year ago its shares were valued at Rs 114 each.
“This is because investor confidence on development banks and finance companies has plunged lately as a few of them were declared troubled by the central bank,” said Bijay Lal Shrestha, managing director of NCM Merchant Banking Limited.
Related story
United's Sanchez returns to haunt Arsenal in Cup win
