The annual general meeting of the Himalayan Bank Ltd (HBL) rejected the planned merger between HBL and Nepal Investment Bank Ltd (NIBL), after 10 months.
"The 29th annual general meeting of the bank today rejected the planned merger with Nepal Investment Bank,” confirmed Himalayan Bank chief executive officer Ashoke Rana. "So the merger plan with Nepal Investment Bank has officially ended as of now."
The failure of the merger proposal will, however, hurt the investors as the bank cannot distribute dividends and also cannot expand their networks to increase business. The proposal of merger failed in the AGM as the Employees Provident Fund (EPF) and a group led by Manoj Bahadur Shrestha refused to endorse it. The EPF and Shrestha’s group totals some 36 per cent share in the bank.
Shrestha is a former chairman of Himalayan Bank, and EPF -- the government body -- is the institutional promoter. The central bank, has however, clarified that the banks will not be able to distribute the dividends as a fine for 'the demerger'.
The two commercial banks had signed a memorandum of understanding (MoU) for the merger last May, committing to completing the merger within two months. But the group led by Shrestha was not happy with the proposal.
"The EPF conducted a separate due diligence audit (DDA) of both the banks after the new government was formed in July, even though the merger committee had already conducted DDA,” according to an investor. "The EPF also rejected the merger plan in view of losses projected for it on the basis of the DDA it has conducted."
The merger committee had agreed to seek approval from the AGM for the merger with Nepal Investment Bank on the basis of 1:1 share swap ratio.
The AGM of Nepal Investment Bank Ltd is scheduled for January 18. Howeverm it also needs have a second thought after the rejection from the Himalayn Bank's annual general meeting. Nepal Investment Bank Ltd that feels betrayed by the new development has called emergency meeting of the board of the bank for Sunday.
The central bank -- that is encouraging the mergers -- had extended the deadline for the completion of merger after they wrote an official letter of intent for merger last June.
The merger of the two big commercial banks has been expected to set a precedent for big mergers in future as thed central bank wanted to reduce the number of banks and financial institutions (BFIs) through 'big mergers' enabling the single bank to invest in large infrastructure projects.
Currently, there are 27 commercial banks in Nepal. The number came down as some of the BFIs have already merged.
Himalayan Bank had decided to pass the merger proposal through voting following differences over the merger between its promoters. According to the voting result some 42 per cent of the votes came in against the merger proposal following objections expressed by the EPF, N Trading Company and Chhaya International. In order to pass the merger proposal, some 75 per cent shareholders had to approve it.
Himalayan Bank has 14.87 per cent share investment of the EPF, where N Trading Company has 12.77 per cent and Chhaya International has 8.94 per cent stake in the bank. Likewise, Habib Bank of Pakistan has a 20 per cent stake in the bank. It is the largest shareholder in the bank, followed by the EPF.
The board of directors of Himalayan Bank had been divided since the merger agreement was signed with the NIBL. Founding promoters Habib Bank, Mutual Trading Company, Aabha International and Khetan Group are in favour of the merger where EPF, N Trading Company and Chaaya International were against the merger.
Following the agreement, both the institutions had formally informed the regulatory authority central bank, Nepal Stock Exchange (Nepse), Office of the Company Registrar and Securities Board of Nepal (Sebon) about the merger agreement. Moreover, shares of both the institutions had been been suspended until the integrated transaction is completed. The two institutions had planned to start joint operation from last October 1, last year.
Himalayan Bank Ltd --- established in 1993 in a joint venture with Habib Bank Ltd of Pakistan -- was established by Prithvi Bahadur Pandey, who is currently the chairman of Nepal Investment Bank Ltd.
Nepal Investment Bank Ltd, earlier Nepal Indosuez Bank Ltd, was established in 1986 as a joint venture between Nepali and French partners. But in 2002, a group of Nepali companies, comprising bankers, professionals, industrialists and businessmen acquired the 50 per cent stakes of the French partner, Credit Agricole Indosuez in Nepal Indosuez Bank, and accordingly the name of the Bank was changed to Nepal Investment Bank Ltd.