Sunday, April 8, 2012

Government to divest shares of Agriculture Development Bank by this year end

If everything goes as planned, the government will complete the divestment process of Agriculture Development Bank within a year.
The government has been planning to divest 30 per cent of its shares in the Agriculture Development Bank under its reform programme. "The technical committee will forward its recommendations on the process, bid documents, and minimum bid price within six months to the privatisation committee," said joint secretary of the Finance Ministry Khum Raj Punjali, who leads the technical committee that also has representatives from the central bank, Finance Ministry, Securities Board of Nepal and the bank itself.
The privatisation committee will ask for bids from interested parties on the basis of the recommendations provided by the technical committee, he said, adding that the international standard framework is key for the bidder which could either be a foreign or a domestic investor to become a strategic partner of the bank which was established in 1968.
Earlier, Agriculture Development Bank had listed 30,375,000 unit shares at the share market at a face value of Rs 100 per unit making it a total of Rs 3.03 billion paid up capital of the listed shares. Its share was traded at Rs 100 per unit today.
Currently, the government holds 51.78 per cent share in the bank. Out of the remaining 49 per cent, 30 per cent was issued to the public last year, another 14.14 per cent was distributed among its debtors in 2007, and 5.86 per cent of the shares have been allocated to the bank’s staff.After the divestment of 30 per cent shares, the government will hold only 21.78 per cent.
Under the bank's reform programme funded by the Asian Development Bank (ADB), it has to divest its shares to get the remaining loan from ADB. According to the agreement between Nepal and the multilateral donor, ADB has already provided $5.6 million loan and $8.7 million under cluster I, which Nepal received last year.
Under Cluster II, a $60.4 million loan and $12.1 million grant has to be claimed by Nepal by this December. But the government is also planning to ask ADB to extend the time frame as it believes that the process will not be complete by the end of 2012 to claim the remaining loan.
Nepal had already received $30 million but to claim the remaining amount, the government has to divest its remaining shares in the bank. Though the loan could be used by the government, the divestment of the bank's shares is a must, according to the agreement.
The divestment of 30 per cent shares will help Agriculture Development Bank raise fresh capital and expedite the capital restructuring plan as prescribed by ADB under the second phase of the Rural Finance Sector Development Cluster started in 2004.The Manila-based agency had extended support to Agriculture Development Bank after the state-controlled bank nearly went bankrupt in 2003 with its non-performing loans reaching 47 per cent.
Since then, ADB has injected Rs 8.7 billion into the bank as preference shares and has extended technical support by upgrading its IT infrastructure and providing IT related training to its staff.In return, ADB had asked Agriculture Development Bank to completely overhaul its governance practices, management structure, business processes and the way it has been delivering services, along with divestment of shares owned by the government.
The bank's financial health has improved of late. It generated a net profit of Rs 1.6 billion last fiscal year. Over the years, the bank has also converted Rs 2.30 billion of the ADB loans into debentures.
The Agriculture Development Bank has been operating as a class 'A' commercial bank since July 14, 2005, according to the Company Act, and Bank and Financial Institution Ordinance which were introduced in February 2004 and which abolished all Acts related to financial institutions including the Agriculture Development Bank Act 1967.


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