Reliance seeks green light for IPO issuance

Reliance Spinning Mills is pressing Nepal’s Securities Board (SEBON) and other authorities to approve its public share issuance. The company argues that, after receiving a clean bill of health from multiple investigations, it should be allowed to proceed with its IPO.

Reliance claims that all probes have confirmed its financial status and net worth, paving the way for public share issuance. Initial complaints had been lodged against the company’s financial statements, leading to investigations by SEBON, the Central Investigation Bureau (CIB), parliamentary committees, and the judiciary. However, each body ruled in favour of the company, validating its financial reports.

Previously, Reliance sold ordinary shares to qualified institutional investors through the book-building method at a cutoff price of NPR 912 per share. The public was offered a 10% discount, allowing applications at NPR 820.80 per share.

On January 23, the company requested SEBON’s approval to launch its public IPO. Regulations dictate that once shares are issued to institutional investors via book-building, an IPO must follow within a week.

The process stalled when the Nepal Electricity Authority (NEA) claimed that Reliance owed NPR 1.94 billion in electricity dues, raising questions about the company’s net worth and premium valuation. If this liability were fully accounted for, Reliance’s net worth would fall below NPR 150 per share. However, NEA later revised the outstanding amount to NPR 730 million, keeping the net worth above NPR 150.

Despite the revision, SEBON suspended the IPO, awaiting decisions from regulatory bodies and the courts. The cabinet, Ministry of Energy, and NEA’s Board later directed NEA to issue a new bill based on Time of Day (TOD) meter readings for eligible companies. This could reduce or eliminate Reliance’s outstanding dues, allowing the IPO process to move forward.

NEA’s Itahari Distribution Center informed the Sunsari District Court on August 28, 2023, that TOD meter data for the disputed period was unavailable because updated readings replace old data.

In the meantime, Reliance’s financial performance has improved, with net profit exceeding NPR 80 million. The company’s financial report shows a profit increase of NPR 36.3 million in the first quarter of the current fiscal year, bringing total net profit to NPR 86.78 million. As of the last fiscal year’s end, the company had earned NPR 50.38 million. Operating income during the review period reached NPR 2.34 billion, with total profit by mid-October amounting to NPR 289.4 million.

Reliance also reported NPR 11.35 million in other income, NPR 203.13 million in operating profit, and NPR 104.37 million in financial expenses. The company’s paid-up capital stands at NPR 1.70 billion, with additional equity totaling NPR 5.43 billion. After suffering setbacks last year due to power cuts, Reliance has rebounded, with earnings per share (EPS) climbing from NPR 2.97 to NPR 19.95 in the first quarter.

Pressure from Institutional Investors

Institutional investors are expressing frustration over the delayed IPO. They invested nearly NPR 700 million almost a year ago, purchasing 770,640 shares at NPR 912 each, but their funds remain tied up.

SEBON’s delay in granting permission for the public IPO has left institutional investments stranded, causing growing anxiety.

SEBON’s Response

Dr. Nabaraj Adhikari, Executive Director and spokesperson for SEBON, noted that the board would assess Reliance’s updated details before making a decision. “We paused the IPO due to various complaints. Now that we have received responses from all authorities, we can evaluate the updated financials to come up with a decision,” he said.

Reliance had previously received approval for a premium share issuance to institutional and public investors. However, SEBON halted the public share issuance pending further review, following complaints lodged with multiple regulatory bodies.