Care Rating Nepal rates upcoming FPO of Nepal Bank with IPO grade of 3+ indicating average fundamentals

Care Rating Nepal Limited has assigned grading of CARE-NP IPO Grade 3 + to the proposed Further Public Offer (FPO) of Nepal Bank Limited (NBL). CARE-NP IPO Grade 3+ indicates average 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 use modifier {"+" (plus)} with the grading symbols 2, 3 and 4 and the same reflect the comparative standing within the category. 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. NBL has proposed a FPO of 17,684,858 equity shares of face value of Rs.100 each at issue price of Rs.280 per share (including Rs.180 premium per share) aggregating Rs.4951.76024 million.

The grading assigned to NBL derives strength from long track record of operations, majority ownership by Government of Nepal (GoN) and experienced management team, adequate capitalization level, diversified and high geographical coverage through branches, considerable growth in total income and net profit over the period, consistent growth in loan & advances and deposits, strong Return on Total Assets (RoTA) and Current Account Saving Account (CASA) ratio, diversified loan portfolio over various industries and comfortable liquidity profile.

Ability of the bank to continue its growth momentum without compromising on asset quality and maintaining capital adequacy and ability to manage the impact of any regulatory changes by Nepal Rastra Bank (NRB) would be the key grading sensitivities. 

The grading, however, is constrained by moderate asset quality and high GNPL ratio, decreasing investment portfolio, intense competition and exposure to regulatory risk related to industry.