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Lending for initial public offering shares banned

 

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News item 24-3-2007

If you are planning to purchase shares with loans from financial institutions during the initial public offering, simply give up the idea. Nepal Rastra Bank (NRB) has recently directed financial institutions not to extend loans for the purpose of purchasing shares during the first phase of initial public offering (IPO). However, the central bank has stated that institutions could be allowed to give loans after a week of the offering, if the shares are not fully subscribed until then. They are required to keep at least 50 percent margin in their lending. The financial institutions were providing loans up to 95 percent of the shares face value during the IPO, with a margin of only five percent. The companies normally float shares for a week during the IPO, during which time most of the companies see their shares over-subscribed. If their shares are not fully subscribed during that time frame, they could extend the offering period for a month, getting prior permission from the Securities Board of Nepal (SEBON). “We have taken this step after companies issuing primary shares saw a spurt in the cost for administrative works to allot the shares, due to the high volume of applications,” said Krishna Bahadur Manandhar, deputy governor of the NRB speaking at a press conference. The central bank's move came after investors began to invest massively for shares in the IPO with loans from financial institutions. Gorkha Development Bank received demand for shares worth over Rs 10 billion -- around 120 times higher than the Rs 100 million it required.
 

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Other banking news and articles:

agricultural development bank loans (24-1-07)

recovery plan for bad loans (1-1-07)

Housing & auto loans dominate consumer financing

Nepal banks rush into consumer lending

 

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