Reliance Spinning Mills Accused of Manipulating Financials to Inflate IPO Prices

Reliance Spinning Mills faces controversy over its financial status as it prepares to issue its initial public offerings (IPOs). Concerns were raised by lawmakers in a recent parliamentary Finance Committee meeting regarding the high price at which the company plans to float its primary shares. Dipak Khadka, a lawmaker from the Nepali Congress, questioned why the company was allowed to issue its primary shares at premium rates when other companies' IPO processes had been halted for six months.

The approval process for IPO issuance had been on hold due to the absence of a chairperson at the Securities Board of Nepal (SEBON) since January when former chairperson Ramesh Hamal retired. Despite this leadership gap, SEBON approved Reliance Spinning Mills’ IPO issuance on June 26 at a rate of Rs 820.80 per unit, a price that lawmakers argue is inconsistent with the company's financial status.

The company has been accused of manipulating its financial details in its IPO application to SEBON. Notably, the company allegedly failed to disclose an outstanding debt of Rs 753.68 million to the Nepal Electricity Authority for using dedicated lines. Additionally, there are claims that the company provided inflated financial figures, showing an earnings per share of Rs 54.34 to SEBON when the actual figure is just Rs 2.08. Despite these discrepancies, SEBON permitted the company to proceed with its IPO through a book-building process. The committee has asked SEBON to explain the discrepancy between the projected figures and the actual results, stating, "What has happened in this regard, given the lack of consistency between the projected details and reality?"

Reliance Spinning Mills is set to issue its primary shares to Foreign Nepalese Immigrants starting Thursday, following a previous sale in February where the shares were sold to institutional investors at Rs 912 per unit. Experts have pointed out that if the company's financial liabilities are taken into account, its net worth stands at just Rs 179.45 per share, suggesting that the opening range for the IPO should not exceed Rs 538.35 per share.