Kathmandu. Guardian Micro Life Insurance has decided to issue 100 percent right shares. According to the decision of the company’s board of directors held on Chaitra 18, 100 percent right shares are going to be issued.
The company has called a special general meeting on Baisakh 5, 2082 to approve the proposal. But the company, which has been unable to do business, is continuously moving forward with its capital increase plan. It can be understood that this is simply a manipulation in the secondary market.
The company had issued an IPO for Nepalis employed abroad in November last year, while the company had issued an IPO for the general public from Poush 21. The shares were delisted and listed on Nepse on Magh 24. The opening range of the company in the secondary market was Rs. 301.
After being listed on the Nepal Stock Exchange, the company’s share price had a continuous positive circuit. Even though the positive circuit stopped after the company’s share price reached 2,000 per share, the company’s share price has not stopped increasing.
On Chaitra 13, the company’s share price was 2,286 rupees per share, and on Thursday, Chaitra 28, the company’s share price reached 2,564 rupees per share. This price can be used to determine how much movement has occurred in the company’s shares in the secondary market.
Although the company’s share price has increased, its earnings have not increased. Like Guardian Micro Life, the Nepal Insurance Authority had also stopped Ajod Insurance from bringing in right shares in 2077 BS. The Authority had stopped the then-unissued rights issue, saying that the plan to increase capital through rights issue was wrong when the company was unable to do enough business for the existing paid-up capital and was unable to pay dividends to investors.
The Nepal Securities Board had even conducted an investigation on suspicion of insider trading. However, due to the balance of power at that time, the investigation report was kept hidden.
Now, Guardian has recently increased its paid-up capital to Rs 750 million by issuing an IPO. It seems that it will have to struggle to increase its business for a few more years. However, the company is still trying to issue 100 percent rights shares.
Meanwhile, the company’s annual general meeting held on Chaitra 11 has already passed a proposal to merge. In such a situation, the company’s decision to issue 100% right shares is nothing but price manipulation in the secondary market.
Not only that, the company’s share price has been continuously increasing for a few days before the company’s board of directors meeting held on Chaitra 18 decided to issue right shares and most of the days it seemed to increase at the level of a positive circuit.
Securities Board spokesperson Niranjay Ghimire, who cannot say anything without looking at the facts and evidence whether there has been manipulation in the name of right shares in the secondary market, said. He told Singha Durbar, “If a big investor says that they will invest money in right shares, we cannot stop it and if there has been manipulation in the price chain of the secondary market, we will study it and take action.”
He said that action will be taken if any company increases its share price in the name of rights issue in a way that affects the secondary market.
He added, “If anyone in any company has taken action that affects the market, the board will take action, but if there is normal trading, we cannot do anything.” He said that further investigation will be conducted into the company.
On the other hand, the Insurance Authority has already written a letter to the company. The company has been asked about the issue of rights shares by writing a letter, said Sushildev Subedi, executive director and spokesperson of the Authority. He said, “We have already written to the company regarding the issue of rights shares, and we will take further steps after receiving details from the company.”
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## What is the legal provision regarding the issue of rights shares?
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## In the provisions regarding the issuance of rights shares by a company, Section 2(m) of the Securities Act, 2063 defines a proposal made to purchase any securities issued by a corporate body by the existing shareholders or any person nominated by them as a rights issue. The provisions regarding the conditions for obtaining the issue of shares are seen in the Securities Registration and Issuance Regulations, 2073.
Under the provisions related to the issue of rights shares of securities, in Rule 17 (1) a corporate body may issue rights shares of securities if it wishes to increase its capital by issuing securities to existing shareholders on the specified date, in 1 (a) the proposal shall be submitted to the general meeting within a maximum of two months of the decision of the board of directors of the corporate body to issue rights shares, and in (1) b the corporate body shall submit an application to the board along with the necessary documents and details within two months of the decision of the general meeting to issue rights shares.
Similarly, additional provisions related to this are also made in the Securities Issuance and Distribution Guidelines, 2074 BS regarding the issue of rights shares by sector, in which different standards are provided for the financial sector and the non-financial sector.
In which, under the conditions to be fulfilled for the issuance of right shares in Section 12 of the Directive for the banking, financial or insurance sector, an incorporated organization may issue right shares only once in a financial year under Sub-Section 20.
While issuing right shares in this way, one hundred and eighty days must have passed from the date of listing of the shares issued last time in the stock market. However, it seems that this provision will not apply in cases where capital needs to be increased as per the directives of the regulatory body. Sub-section (3) states that if a corporate body has to issue right shares due to regulatory provisions related to its business, it must have passed a resolution to issue right shares at the general meeting, stating the reasons for the same. Sub-section (9) states that the corporate body must submit an application to the board within two months of the decision to issue right shares at the general meeting. Sub-section (1) states that if a corporate body decides to issue right shares at the general meeting, that decision must be implemented compulsorily.
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