“10.25% Machhapuchhre Bank Debenture 2085” opens for application; Things to know before investing

Company profile

Machhapuchchhre Bank Limited (MBL) started its operation from Ashwin 17, 2057. Later it merged with Standard Finance and started operating as a class A commercial bank from Ashad 25, 2069.

MBL's registered headquarter is located at Lazimphat-02, Kathmandu. The bank has acquired ISO 9001:2015 certification under Quality Management System on Commercial Banking Activities.

The bank’s major promoters are the Mahato Group (led by Mr. Birendra Mahato, the current Chairman), which has a stake of ~28%, and the KC Group (led by Mr. Surya Bahadur KC, the former Chairman) with a stake of ~20%. Mr. Suman Sharma is the Chief Executive Officer of the bank. MBL has a promoter-public shareholding ratio of 51:49. The bank’s equity shares are listed and traded on the Nepal Stock Exchange. 

The paid-up capital of MBL stands at Rs 8.05 arba and reserve and surplus stands at Rs 3.18 arba as of fourth quarter of fiscal year 2075/76. It has recoded the profit of Rs 1.70 arba upto the fourth quarter of 2075/76.

The bank currently has 131 branches, 112 branchless banking unit and 144 ATM terminal in operation all over the nation.

Objective

About the issue

Machhapuchchhre Bank Limited (MBL) is issuing “10.25% Machhapuchhre Bank Debenture 2085” from Shrawan 6, 2076 to Shrawan 9, 2076.

MBL is issuing 30 lakh units debenture at par value of Rs.1000 each to raise debt worth Rs.3 Arba with the maturity of 10 years. Out of the total issue 1,200,000 units (40% of the issue) are for the general public while remaining 1,800,000 units (60% of the issue) will be privately placed.

ICRA Nepal Limited has assigned ICRANP-IR A- Rating to the Rs. 3 arba Debenture Programme of Machhapuchchhre Bank Limited. Instruments with this rating are considered to have good degree of safety regarding timely servicing of financial obligations. Such instruments carry low credit risk.

Capital structure

Shareholding composition

Primary Shareholders

Board of directors

Management team

*The company has 999 employees in total.

ICRA Rating

ICRA Nepal has assigned [ICRANP-IR] A- (pronounced ICRA NP issuer rating A minus) to Machhapuchchhre Bank Limited (MBL). Issuers with this rating are considered to have an adequate degree of safety regarding the timely servicing of financial obligations. Such issuers carry low credit risk. The rating is only an opinion on the general creditworthiness of the rated entity and not specific to any particular debt instrument.

ICRA Nepal has also reaffirmed the rating of [ICRANP] LA- (pronounced ICRA NP L A minus) for MBL’s subordinated debentures of NPR 3,000 million. Instruments with this rating are considered to have an adequate degree of safety regarding the timely servicing of financial obligations. Such instruments carry low credit risk.

Strengths and opportunities

• Established track record in the industry (operating since 2000),
• Adequate market presence (through 100 branches as of mid-April 2019)
• Good capitalization profile
• Bank’s capitalization profile is likely to be further strengthened after the proposed debenture programme, assuming full subscription
• Good asset quality and delinquency level (notwithstanding the recent deterioration), which reflect the bank’s adequate underwriting controls in recent years
• Steady and industry average credit growth maintained by MBL in recent years with a recent uptick in growth backed by the geographical expansion of the branch network
• Adequate profitability, backed by steady net interest margins (NIMs) of ~3.5% over the last two to three years
• Experienced management team and promoters

Weaknesses and threats

• Moderate deposit profile with a low CASA (Current and saving accounts) proportion of 34% as of mid-April 2019 vs. ~41% for the commercial bank industry
• Increased share of term deposits, has kept MBL’s cost of deposits relatively higher (~8.0% in 9M FY2019 and ~7.7% in FY2018), which could weaken its competitive positioning in the ‘base rate plus’ lending regime
• Relatively higher deposit and credit concentration among the top accounts (~23% and ~22% of total deposits/loans concentrated among the top 20 depositors and borrower groups, respectively) as of mid-April 2019
• Uncertain operating environment currently faced by the banks in Nepal
• High credit growth registered by the bank in recent years and the prevailing high interest rates as well as the shortage of lendable funds and deposit rate volatility in the market.
• Relatively higher exposure to sectors that are vulnerable to upticks in interest rates (viz. real estate, hire purchase, etc) also remains a concern.
• The liquidity profile could also come under pressure, given the high CCD ratio maintained by the bank, relatively high deposit concentration and interest rate volatility in the banking industry.

Source: https://icranepal.com/releases.php

Financial indicators

Source: Company prospectus and ICRA Nepal Rating Report