Kathmandu, June 30:

Five financial institutions — Mahalaxmi Finance Ltd, Birgunj Finance Ltd, Siddhartha Finance Ltd, Butwal Finance Ltd and Himchuli Development Bank — have signed an accord with NMB Bank Ltd to issue rights shares.

“The companies that currently have Rs 60 million to 90 million paid up capital have to increase their paid up capital to Rs 400 million each to make a total of Rs 2 billion required for a commercial bank,” said Upendra Poudyal, issue manager and CEO of NMB Bank, adding that they would float rights shares within three months.

After a special AGM, they proposed rights shares but at different ratios according to their present capital structure.

They signed an accord on April 28 to merge and upgrade to an A-level commercial bank. On Jue 24, they had applied to the central bank for Letter of Intention (LoI).

“They are planning to increase their paid up capital to Rs 400 million each to upgrade to a Rs 2 billion commercial bank,” said Ramesh Kumar Bhattarai, coordinator of the merger committee.

The proposed A-class commercial bank will have its head office in Kathmandu and the head offices of each of the financial institutions in the districts will work as branch offices, Bhattarai said, adding that it was an added advantage for the bank as the five financial instituions already have their foothold in different districts. “Unlike other newly opened institutions, we don’t need to search for a new market,” he said.

However, Nepal Stock Exchange (Nepse) has halted share trading of these five financial institutions until further notice till May 8. The news of their merger and upgradation to an A-class commercial bank has fuelled the share prices of these financial institutions, forcing Nepse to act immediately.

The four finance companies and the development bank jointly announced their merger to become a commercial bank with a paid up capital of Rs 2 billion. However, citing a huge difference in the size of their paid capital, unclear policy on their liability and the ratio between share and capital reserve Nepse asked them to bring the LoI from Nepal Rastra Bank (NRB), the regulatory authority of the financial market.

“They also have not got any approval from NRB, the central bank,” said Nepse. As per the regulation, they must get the regulatory authority’s prior approval.

The stock market is also sensitive to rumours that it may lead to ‘unnatural’ price rise of their scrips making new investors more vulnerable.