Care Rating Nepal assigns IPO Grade 5 to proposed 166.67 % Rights Share Issue of City Express Finance Company; indicates Poor Fundamentals

CRNL has assigned grading of CARE-NP IPO Grade 5‟ to the proposed Rights Share Issue of City Express Finance Company Limited (CEFL). CARE-NP IPO Grade 5‟ indicates Poor Fundamentals. 

CRNL assigns IPO grades on a scale of Grade 1 to Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. CRNL‟s IPO grading is an opinion on the fundamentals of the issuer. The grade assigned to any individual issue represents a relative assessment of the fundamentals‟ of the issuer. 

CEFL proposes 166.67% rights share issue of 25 lakh number of equity shares of face value of Rs.100 each at par aggregating Rs. 25 crore.

The grading assigned to the rights share issue of CEFL is constrained by its Gross Non-performing Loan to Total loan is at 100%, negative net worth and Capital Adequacy Ratio (CAR) till July 15, 2017 (FY17), however, improved as on April 13, 2018 (9MFY18) after infusion of capital, declining deposits and credit Portfolio over the period, negligible income from operations and operating profit before provision for possible losses was volatile over the period, competition from other big finance companies and banks and lack of good corporate governance practices in past; which is expected to be improved by entry of new promoters, directors and management team.

The grading, however, derives strength from experienced & reputed new promoter group and management team and status of the recovery of Non-Performing Loan and NBA being satisfactory. Ability of the company to improve assets quality by recovery of non-performing loan and realization of NBA, ability to raise the share capital as projected and simultaneously grow business and ability to manage the impact of any regulatory changes by NRB would be the key sensitivities.