ICRA Nepal assigns Grade 5 to the proposed 125% right issue of General Finance

ICRA Nepal has assigned “[ICRANP] IPO Grade 5” grade to the upcoming 125% right issue of General Finance Limited (GFL), indicating poor fundamentals. GFL is seeking to issue 1,652,850 units right shares worth Rs 16.52 crore in the ratio 1:1.25 to be floated at a par value of Rs 100 per share. As per Icra Nepal, the lowest IPO grade reflects GFL’s poor financial profile caused by weak assets quality (gross NPL of 93.5% on mid-April 2017). The grading also remains constrained by losses accumulated over the years leading to erosion of net worth (accumulated loss of NPR 170 million as on mid-April 2017). The business of GFL was subjected to multiple restrictions after being classified as “problematic institution” by NRB between May 2013 and December 2016. Because of the restrictions, the credit and deposit portfolio declined leading to high customer concentration risks (61% of deposit among top 20 depositors and 33% of total credit among top 5 borrower accounts as on mid-April 2017). GFL’s profitability profile remains weak because of high NPLs and reduced scale of operations at present. General Finance has net loss of Rs 2.50 crore in the third quarter of the FY 2073/74.  Its paid up capital stand at Rs 13.22 crore. After the issuance of 125% right, its paid up capital will reach Rs 29.75 crore. The finance company’s 16th to 19^th AGM had endorsed 125% right share to its shareholders. ICRA Nepal assigns grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals.