BB rejects IFIC’s plea to transfer $12m for Nepal bank investment - Share market analysis of dhaka stock exchange, Bangladesh

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17 January, 2017 10:18 AM Source: New Age
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Bangladesh Bank has rejected an IFIC Bank Ltd’s application for transferring capital worth $12.29 million or around Tk 98 crore to make further investment in Nepal-based Nepal Bangladesh Bank Limited.
IFIC Bank, which has already invested around $16.52 million or around Tk 132.22 crore in NB Bank by transferring capital from Bangladesh, applied in November last year to the BB for making the fresh investment in NB Bank by purchasing rights shares offered by the Nepalese bank.
The BB follows strict rules in allowing any entity to take capital out of the country and gives permission to take out fund on ‘case-to-case’ basis only.
The central bank on January 5 sent a letter to IFIC Bank rejecting its proposal to repatriate more capital from Bangladesh.
A BB official told New Age last week that it was not ‘logical’ to allow IFIC Bank to take out more capital from Bangladesh as the amount of money the bank repatriated to Bangladesh so far was not significant.
IFIC Bank submitted the application to the BB on November 3, 2016 saying that the bank now owned 40.91 per cent share of NB Bank and IFIC Bank would have to purchase the rights shares of the foreign bank by transferring capital to maintain its existing control over the bank.
It said that the central bank of Nepal had recently issued a circular saying that every scheduled bank would have to raise their paid-up capital to Nepalese rupee (NPR) 8,000 million within this financial year 2016-17 to be enlisted as an ‘A’ category bank.
The paid-up capital of NB Bank is now NPR 4,011 million.
Against the backdrop, NB Bank at its annual general meeting on October 24, 2016 decided that the bank would issue 32 per cent stock dividend and rights shares at a ratio of 10:8 to its shareholders to increase its paid-up capital.
IFIC Bank first invested in NB Bank in 1994 under a 50:50 partnership with a Nepalese entity. IFIC’s shareholding, however, came down to nine per cent in 2013 before the Bangladeshi Bank made further investment in 2013 taking its total shareholding in the bank to 40.91 per cent.
According to the IFIC Bank’s investment-related statement, the bank earned $1.39 million or Tk 11.13 crore in cash dividend from NB Bank since 1994 while it got 93,91,261 shares as stock dividend.
IFIC Bank got 39,78,078 shares as stock dividend from the Nepalese bank in FY 2015-16 and the market price of each share was $8.18.
The BB official said IFIC Bank would earn $32.54 million or around Tk 260.32 crore if it sells the shares (stock dividend received in FY16).
‘In that case, IFIC Bank can also repatriate to Bangladesh around $23.22 million or Tk 185.79 even after buying the rights shares,’ he said.
The shareholding of IFIC Bank in NB Bank, however, will decrease to 31 per cent from the existing 40.91 per cent, he said.
The NB Bank’s share prices went up to NPR 860 in FY16 from NPR 121 in FY12. The current prices of each share of the bank are NPR 729.
‘It is logical to sell the shares received through stock dividend when the price is high. As the capital market is an uncertain place, there is every chance that the price may become unstable any time,’ he said.
The BB in its January 5 letter asked IFIC Bank to sell the stock dividend and purchase the rights shares using the proceeds.
The BB also asked the bank to repatriate the remaining fund (to be received by selling stock dividend) to the country, the letter said.
IFIC Bank deputy managing director Shah Md Moinuddin told New Age on Monday that his bank had recently applied again to the central bank to reconsider its (BB) decision; otherwise the controlling power of IFIC Bank in NB Bank would decrease significantly.
‘IFIC Bank earlier appointed three board members at NB Bank. The number of its board members in the bank will decrease if the central bank denies transferring the capital,’ he said.
Against the backdrop, IFIC Bank requested
the central bank to reconsider the issue as the
financial position of NB Bank is now highly good, he said.
Prime minister’s private sector adviser Salman F Rahman is the chairman of IFIC Bank and finance ministry additional secretary Jalal Ahmed is the chairman of NB Bank.
Bangladesh government holds 32.75 shares in IFIC Bank. 

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