10.25% Prabhu Bank Debenture 2086 opens from today; look at essential information about the issue and issuer

Company profile

Prabhu Bank Limited (PRVU) started its operation under this name from Bhadra 30, 2071 after the merger and acquisition of following institutions:

1. Kist Bank Limited
2. Prabhu Bikas Bank
3. Gaurishankar Development Bank
4. Zenith Finance

After that, PRVU acquired Nepal Bikas Bank and Grand Bank. Currently, it has a network of 196 branches, 36 counter offices and 152 ATMs. Its head office is located at Babarmahal - 11, Kathmandu, Nepal.

PRVU is mainly promoted by the individuals and entities belonging to the Prabhu Group, which is an established business group, especially in the remittance and financial sector in Nepal. The bank’s shares are listed on the Nepal Stock Exchange with 55% held by the promoters and the rest (45%) by the public. The bank’s registered and corporate office is in Babarmahal, Kathmandu. 

Prabhu Capital is the subsidiary of PRVU with capital of Rs 21 crore.

Objective

About the issue

Prabhu Bank Limited (PRVU)'s "10.25% Prabhu Bank Debenture 2086" will be issuing a total of 10 lakh units at a price of Rs 1000 per unit. The bank has separated 6 lakh units for private placements and the remaining 4 lakh units for the general public.

The debenture will be offering 10.25% interest payable semi-annually for a period of 10 years. Applications can be placed via Mero Share or by submitting applications to any CASBA member institutions.

Sunrise Capital is the issue manager of the debenture issuance.

Interested individuals can apply for a minimum of 25 units and a maximum of 4 lakh units. The issue will be open from Kartik 21, 2076 till Kartik 25, 2076. However, if the issue isn't fully subscribed, the closing date will be extended till Mangsir 20, 2076.

Capital structure

Shareholding structure

Primary shareholders

Board of Directors

Management Team

*There are 1,969 employees in total.

Rating

ICRA Nepal has assigned an issuer rating of [ICRANP-IR] BBB (pronounced ICRA NP issuer rating triple B) to Prabhu Bank Limited (PRVU). This rating is considered to be of moderate credit quality. The rated entity carries moderate credit risk. The issuer rating is only an opinion on the general creditworthiness of the rated entity and not specific to a particular debt instrument. The sign of + (plus) or – (minus) is appended to the rating symbol to indicate their relative position within the rating category concerned.

ICRA Nepal has also assigned [ICRANP] LBBB (pronounced ICRA NP L triple B) to the proposed subordinated debenture programme of PRVU. Instruments with this rating are considered to have a moderate degree of safety regarding the timely servicing of financial obligations. Such instruments carry moderate credit risk. 

Strengths and opportunities

• Healthy deposits profile with a higher share of low-cost current and savings accounts (CASA) compared to the industry (~44% against 41% as of mid-January 2019).
• Relatively lower cost of deposits compared to its peers (6.04% for the bank compared to 6.50% for the industry in H1 FY2019) and hence remains a key competitive strength.
• Diversified franchise (169 branches as of mid-January 2019) leading to good market positioning in Nepal with a share of ~4% in industry deposits and credits.
• Experienced board of directors and senior management team, augurs well for PRVU’s growth prospects, going forward.
• Ability to improve its overall financial profile during the last 3-4 years despite having merged with/acquired much weaker financial institutions with high non-performing loans (NPLs). This was aided by gradual improvements in the bank’s operational profitability during this period.
• Though the profitability was not supported by sizeable provision write-backs, as in earlier years, the bank was able to report return on net worth (RoNW) and return on asset (RoA) of ~16% and ~1.8%, respectively, in H1 FY2019, which remains a rating positive.
• Balanced portfolio mix and hence relatively low customer concentration risks.

 Weaknesses and threats

• Inferior asset quality with gross NPLs of 2.47% as of mid-January 2019 (1.48% for the industry) and 0+ days delinquencies of ~10%.
• While ICRA Nepal notes the gradual decline in NPLs (from ~15% in mid-July 2014), fresh NPL generation remained high till FY2018 (2.4%), thereby remaining an area of concern.
• Additionally, the downsizing of NPLs was aided by the diluting effect of portfolio growth as well as the sizeable write-offs apart from recoveries/upgradations.
• Risks emanating from the bank’s high credit portfolio growth (compounded annual growth rate (CAGR) of ~37% for the three fiscal years ended mid-July 2018 compared to ~24% for the industry).
• Probable systemic risks emanating from the mismatch in credit and deposit growth in the industry over the last few years.
• High operating expenses compared to its peers and its moderate capitalisation profile (CRAR of 11.92% as of mid-January 2019 compared to 14.24% for the industry)
• Uncertain operating environment and liquidity constraints that the banks in Nepal are currently facing, which could have a bearing on PRVU’s growth plans.

Source: ICRA Nepal Rating (https://icranepal.com/releases.php)

Financial indicators

Source: Company Prospectus and ICRA Nepal rating report