Summit Microfinance receives ICRA Grade 4+ for 100% right issue; Green Development Bank got Grade 5 for upcoming 400% right share

ICRA Nepal has assigned an “[ICRANP] IPO Grade 4+ and Grade 5”, to the proposed rights issue of Summit Microfinance Development Bank Limited (SMFDB) and Green Development Bank Limited (GRDBL). Summit Microfinance right share has already been approved by Securities Board of Nepal (SEBON) while the process to issue right share of GRDBL is in review process. Summit Microfinance is issuing 1:1 (100%) rights share of 725,000 numbers of equity shares at the face value of Rs 100 each to be issued to the existing shareholders at par. The proposed rating of SMFDB indicates below-average fundamental. As per ICRA Nepal, the grading is constrained by the recent regulatory constriction for MFIs capping lending rates at 18% which is expected to impact profitability of the sector going forward. Additionally, Monetary Policy of FY17 also required commercial banks to directly lend 2% to deprived sector (rest 3% of deprived sector lending requirements could be through intermediaries). Any further changes in regulations and banking sector’s preference to route deprived sector lending through MFIs could significantly impact funding support for the sector and hence its growth and profitability prospects of SMFDB. Sanima Capital Limited has been appointed as the issue manager. SMFDB has earned net profit of Rs 3.81 crore in the third quarter of the fiscal year 2073/74 as per unaudited report. SMFDB has a paid up capital of Rs 7.25 crore at present. After issuance of 100% right share, its paid up capital will reach to Rs 14.50 crore. Likewise, Green Development Bank is proposing to issue 1:4 (400%) rights share of 4,000,000 numbers of equity shares at the face value of Rs 100 each to be issued to the existing shareholders at par. The proposed rating of GRDBL indicates poor fundamental. As per Icra Nepal, The grading is mainly constrained by significant deterioration seen in asset quality indicators of the bank in recent periods despite limited track record in banking (operating from August 2013) and hence low seasoning of credit portfolio. GRDBL’s pace of credit growth has remained high over small base (CAGR of ~119% achieved from Jul-15 to Apr-17) and hence portfolio size still remains much smaller (credit portfolio of NPR 306 million as of mid-Apr-2017). GRDBL’s credit portfolio primarily composed of personal loans (33%), hire purchase loans (17%), business loans (14%), term loans (9%), gold loans (8%), deprived sector loans (7%), agriculture loans (6%) and balance being other loans Laxmi Capital Markets Limited has been appointed as the issue manager. GRDBL has a paid up capital of Rs 10 crore at present. After issuance of 400% right share, its paid up capital will reach to Rs 50 crore. Nepal Rastra Bank’s (NRB) Monetary Policy has directed 1-3 district level development banks to maintain their paid up capital to a minimum of Rs 50 crore by the end of FY 2073/74, and after the issuance of 400% right share, the 3-district level development bank will meet NRB’s requirement. ICRA Nepal assigns IPO grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals.