"We are confident that Bhaktapur Finance will gradually move ahead and reveal its true capacities"

Bhaktapur Finance Company Limited is going public with its shares on Baishakh 9. As part of its initial public offering (IPO), the company is planning to float 7,50,000 kitta shares. After the IPO, Bhaktapur Finance’s paid up capital, which stands at Rs 12.50 crore at present, will rise to Rs 20 crore. The company, which was established in the year 2067, operates from a single office in Chyamasingh, Bhaktapur. In an interview with ShareSansar.com, the company’s Chief Executive Officer Govinda Man Shrestha shares how the company plans to use the money raised from the IPO, expand its branches and increase its investments. Tell us about Bhaktapur Finance Company Bhaktapur Finance Limited started its operation in Magh 2067. The main aim behind the establishment of the company was to set an example of healthy banking.  During the time of its establishment, a lot of anomalies were reported in the banking sector.  It was established with the intention to provide trustworthy banking services to the general public. As of now we are engaged in usual banking activities as per company act and NRB directives. At present our services are limited to Bhaktapur only, but later we will move to other areas. Our aim is to use the deposits and resources mobilized from a place for the development of the same place.   Why did you decided to float IPO? We decided to float the IPO to fulfill the regulatory requirement. Initially, NRB guidelines required finance companies to launch IPO within 2 years of operation, but later it was made 3 years. Considering our financial situation, we have not been able to invest as much as we can.  We have enough liquidity. The money collected from the public will add to our liquid situation. For the deposits made by our depositors we needed to pay interest, but for the investment made by public in our IPO no interest payout is required. It will be a bit easier for us to operate that capital. Our credit to deposit ratio, or CD ratio, is nearly 56% to 57%, which means our funds are underutilized. As per the NRB rule, CD ratio can reach up to 80%. We realize that our CD ratio is too low. It has been 4 years since our operation, but it’s been only 2-3 years since we started working properly. We have not been able to expand our loans. But now we will be mainly concentrating on expanding loans as well as investing in other sectors too. At present, we have invested in a few micro finance companies, development bonds, and mutual funds.   Do you have any plan to open new branch offices? Finance companies are not allowed to open branches before floating their IPO. And since we are operating from just one place, we have not been able to make investments or expand our activities. Launching the IPO will pave the way for opening branches. At present, we are considering some places for branch openings.  Bhaktapur is a small locality and restricting ourselves here only will not help us grow. Soon after concluding the IPO, we will step up work on opening new branches. What message you have for investors? As I have said earlier, our focus has been to contribute to building a healthy banking system. The anomalies that plagued the finance sector had hurt the faith of people in banking and finance. We don’t want such things and we will move ahead with that ideal in mind. But ideal alone is not enough to sustain a business, we have to show professionalism as well. Our position is not that bad in terms of profit or other indicators. I won’t say that are we are in a very good position, but the situation is not that bad either and we are confident that the company will slowly move ahead and reveal its true capacities.   What do you have to say about the ICRA rating of 5 for your IPO, indicating poor fundamentals? The rating is based on several factors. It could be modest profits or soaring NPL. The rating also considers institutional good governance, loan concentration, deposit concentration, among others. In our case, it could be because of the loans. NRB has said that the NPL should be below 5%. At the time we applied for ICRA rating in 2069/70, our NPL was at 6.03%. So that could have played a major role in the grading decision. Also, at the time our profit was much less. At present our NPL is at 4.11 and within six months of this fiscal year we managed to raise profits by 4%. There are finance companies that have much worse record than ours, but ICRA’s rating of 5, which is the worst grading category, lumps us with other worse type of finance companies. We think it is not fair. We have already expressed our disappointment with the rating and have urged responsible authorities to make the ratings more reflective of Nepal’s investment environment.   What kind of dividend you hope to provide shareholders at the end of a year? We already have slightly more than Rs 1 crore in our reserve that is distributable. We earned an after tax profit of Rs 52 lakh at the end of fiscal year 2070/71 and after adding other earnings our income will go up to Rs 80-90 lakh. With a balance sheet like that we should be able to give 8% to 10% bonus shares at the end of 2071/72. We may not be in a position to distribute cash dividend for that period.