Wednesday, December 10, 2008

Solution in sight to Nefisco-investor row

The lingering dispute between Nepal Finance Ltd (Nefisco) and investors is close to being resolved as Nefisco has agreed to give ordinary shares to the investors who had bought promoters' shares from the company which sold them the shares allegedly without informing them of their status.
Anoj Agrawal, Broker No 6 - who had bought 3,500-unit of promoters' shares of Lumbini Bank Ltd - said Nefisco had finally agreed to give investors 'ordinary shares' instead of the promoters' shares that it had sold them.
Nefisco sold promoters' shares of Lumbini Bank to the investors as ordinary shares without declaring the status of those shares. Investors had since been urging the finance company to either give them the share certificates of 'ordinary shares' that they had bought or refund the money.
However, after several meetings between Nefisco and the shareholders' representatives, it was decided to give investors ordinary shares.
Nefisco chief executive officer (CEO) Sudhindra Lal Pradhan said that his company had finally agreed to give 3,500-units of ordinary shares instead of promoters' shares. "We had been holding dialogue with Lumbini Bank and the investors for quite some time," he said adding that Nefisco had agreed to the investors' demands.
Though promoters' shares can be sold and bought in the secondary market just like ordinary shares, they have separate status and pricing mechanism that are lower than the market price.
Nefisco also came under fire for not having followed the central bank's directives. On August 13, Securities Board of Nepal (Sebon) suspended the merchant banking licence of Nefisco. It was the first time that Sebon took such stern action after it received a series of complaints from investors against it.
Invoking the Securities Act-2063, Clause 58 (2)(D) and Clause 60 (C), Sebon suspended Nefisco's merchant banking licence and barred it from operating as a merchant banker due to its alleged 'fraudulent' transaction of promoters' shares. Forbidding Nefisco to act as merchant banker, issue manager, underwriter or share registrar, Sebon said it took the step to safeguard the investors' interest after receiving a slew of complaints against Nefisco.
The investors bought the shares thinking these to be ordinary shares. After learning of the status of these shares, they accused Nefisco of duping them. Usually, the brokers for the seller know the status of the shares before they are traded but in this case they ignored it when the transaction took place.
It took a marathon round of investors' meetings with Nefisco, Sebon, Nepse and Lumbini Bank, for the case to get solved. The blame game continued between Nefisco and brokers for long.
However, this has not been the only case of sale of promoters' shares to investors. Some other financial institutions like Kathmandu Finance Ltd had also sold its promoters' shares to the public without declaring their status.

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