Kathmandu. Securities Board of Nepal (SEBON) has granted permission to Nabil Bank to issue unissued unissued preferential shares. For the first time in Nepal’s history, Nabil Bank has been granted permission to issue unissued preferential shares.

The Securities Board of Nepal (SEBON) has granted permission to Nabil to issue 50 million units of unissued unsubscribed preference shares at 8% dividend to its shareholders. NIC Asia Capital has been appointed as the issue manager for the IPO issuance. A bank is a capital market instrument with the ability to provide a fixed dividend rate of a certain percentage but does not have a fixed payment period.

Only institutional investors will be allowed to invest in these shares while individual investors, mutual investment schemes and securities entrepreneurs approved by the Board are barred from investing in these shares. According to the provision made by Nepal Rastra Bank, these shares are likely to be converted into ordinary shares of the promoter group and the company distributes dividend only in the year of distributable profit. Since it is not able to distribute dividends from the year it is in loss and accumulated profits, it is called unsecured preference shares.

This is the first time that such an instrument has been used in the international capital market to strengthen the capital structure of financial institutions especially after the experience of the global financial crisis of 2007/09. The rights vested in the preferential shareholders shall be as stated in the prospectus of the company. At the time of dissolution of the company, the payment of these shares is before the ordinary shares and behind the creditors, depositors and supplementary capital of the company.

This tool is expected to strengthen the capital structure at a time when banks and financial institutions are under pressure, thereby reducing the risk of financial crisis and stabilizing the financial system. In addition, investors will also have access to new investment tools. However, since these shares are unredeemable and uncertain in nature, it is imperative for institutional investors to study the prospectus and risk disclosure statement thoroughly before investing. Also, it is advisable to invest only according to your risk appetite.

The Board has amended the Securities Issue and Allotment Directive and made it mandatory to grant permission to issue such instruments only to the banks and financial institutions approved by the Nepal Rastra Bank. Since this instrument will be listed in the secondary market, institutional investors will be able to trade in the secondary market as well.