Divestment of the government’s holdings in Bank of Bhutan

The divestment of the government’s holdings in Bank of Bhutan, or increasing the bank’s share capital through a primary float, must take place by June 1, failing which a severe penalty will be imposed, the central bank announced yesterday.

“The timing is not negotiable,” the central bank’s deputy governor, Eden Dema, said.

The bank was levied a penalty of Nu 5,000 a day from November 8 last year to 8 April 2011, for failing to comply with the central bank’s deadline to issue the prospectus for divestment. “The penalty was imposed almost three and a half years, since the directive to divest was given,” Eden Dema said. The penalty accrued is Nu 750,000 which the bank wants waived, but the central bank has denied.

The central bank directed BoB to go public, based on the regulations for the establishment of commercial banks in March 2007.

But officials of Druk Holdings and Investments (DHI), which holds 80 percent of the bank, said it might not be possible to revalue the bank’s assets to determine its share price before June 1.

Although RMA also provided options on how to determine share prices, based on the banks audited account of December 2010, DHI’s executive director, Damber Singh Kharka, said the recent balance sheet of the bank does not reflect the current value of its assets like land and its investments on shares.

“Valuation of a company assets, which has been in the market for 43 years, may require a great deal of time,” he said. “The bank doesn’t have the capacity to come out with a proper valuation within June 1.” DHI had also considered requesting international consultants to assist with determining the share prices.

On the criticism it received on preempting the parliament with regards to divestment, Eden Dema said, if RMA had to wait for the Financial Services Bill to be passed in the parliament, it would also have to stop the operation of new banks, because it comes under the purview of the FSA.

On April 11 last year, the bank decided to go public on its own accord and offload 33 percent of its holdings and had sought RMA’s approval. However, the next month, DHI sent a letter to the central bank to reconsider the public float.

RMA has suggested that the bank could either make an offer for subscription or an offer for sale.

Offer for subscription would mean enlarging the share capital. The bank’s paid up capital could increase to Nu 533M, if Nu 133M worth of shares was floated to the public.

The offer for sale would require the shareholders DHI and State Bank of India to offload 25 percent of the holdings.

Eden Dema said the offer for subscription is better, since it benefits the company in the long run.

The central bank arrived at a share price of Nu 577 a share, according to figures available with RMA. The banks paid up capital at Nu 400M, its reserves at Nu 1.9B, retained earnings at Nu 883 and the total number of shares at 4M.

According to the procedures and timeframe for the divestment set by RMA, it will require the bank to prepare its prospectus by May 6, submit it before May 20 and publish the abridged prospectus by May 27.

Source: Kuenselonline

Bhutan finance ministry received Nu 1.3B from the World Bank yesterday

In a move that will help government strengthen and develop its institutions and rural infrastructure, among others, the finance ministry received Nu 1.3B from the World Bank yesterday.

The fund is more of a concessional loan than commercial borrowing.

Finance minister Wangdi Norbu said the concessional loan is not related to any specific project, but can be used for different types of expenditure, like the building of schools, hospitals and other capital assets.

“However, the amount cannot be utilised in meeting recurrent expenditure,” he said, adding that government’s establishment cost will have to be met from internal revenue.

Of the total, Nu 1,086M will be channeled towards the development policy credit, which will strengthen government institutions to promote efficiency and effectiveness through sound fiscal and public financial management.

The rest of the amount will be used for additional financing of the decentralised rural development project, targeted at strengthening local government administration through capacity building at a local level.

Bhutan's World Bank representative, Mark LaPrairie said the rural development project was also aimed at providing increased access to market, farm roads and in increasing agriculture productivity of cash crops.

“It will also focus on rural infrastructure development, support improved technologies and in institutional strengthening of the renewable natural resources sectors,” he said.

The original amount, negotiated some time in March 2005, was at USD 7M.

During World Bank's managing director Dr Ngozi Okonjo-lweala’s visit last year, Bhutan was assured of receiving concessionary loans until 2014, despite the per capita income disqualifying the country from receiving the assistance.

Lyonpo Wangdi Norbu said such type of concessionary loans will soon become less common, as the country gradually sees a domestic growth and develops, in terms of the per capita income.

Meanwhile, the signing of the financing agreement was postponed, following the High Court ruling on constitutional validity of receiving loans, that was considered a money bill and demanded its approval through the parliament.

But the Supreme Court had clarified that the government could raise loans and make grants in accordance to the Public Finance Act.

The agreement signing between the finance minister Wangdi Norbu and World Bank’s vice president Isabel Guerrero yesterday also marked the opening of the bank’s new office in Thimphu.

Officials said it will facilitate the bank to work closely with different branches of the government.

World Bank remains one of Bhutan’s major development partners starting 1983. Since then, it has financed over 13 loan projects amounting to USD 150.127M and 20 grant projects amounting to USD 62.970M.

Profits dip by Nu 44 million: Bhutan National Bank

Foreign exchange movement, not performance, led to a slump in Bhutan National bank’s profits, the first time in eight years, say bank officials.

“If you exclude the foreign exchange (forex) component for 2008 and 2009, we’ve actually grown by more than 23 percent,” said BNB’s chief executive officer, Kipchu Tshering.

In 2008, the bank had a windfall of Nu 84 mn through forex and last year it suffered a loss of Nu 19 mn. BNB, like most banks, is required to maintain at least USD 10 mn in foreign exchange to facilitate third country transactions.

According to the bank’s profit and loss account, which was not obtained from bank officials, BNB’s profits fell by about Nu 44 mn in 2009, with profit after tax slipping to Nu 266.2 mn from Nu 310.3 mn in 2008.

While income from interest on loans grew to Nu 1.14 bn from Nu 917 mn, interest paid on fixed deposits shot up to Nu 588.9 mn from Nu 329 mn in 2008.

The bank’s management said that the raise in corporate fixed deposit rates last year to attract more funds had increased the cost of funds. “Our lending was growing but not our deposits, so we raised the fixed deposit rates to avoid a cash crunch,” said Kipchu Tshering.

While this increased deposits to Nu 21.65 bn from Nu 14.60 bn and loans also grew to Nu 11 bn, shareholders pointed out, during the bank’s annual general meeting in Thimphu on March 23, that the huge interest payments on fixed deposits had significantly eaten into the profits.

“The bank has made money, but it could have made much more had it not taken so much deposits,” said a shareholder. “It’s a lapse on the management for not being able to track investment as well as fund flow.”

The bank did the same in 2002 and its profits fell for the first time after it was formed in 1997, said another shareholder. “It’s a repeat of 2002, they took in just too much money.” He also said that the bank could be stuck with paying high interest rates for some time, particularly for long term fixed deposits.

For the Bank of Bhutan, the cost of funds were much cheaper, because most government agencies, for whatever reasons, had their current accounts with them, on which the bank incurred no cost but charged for services rendered.

BNB today has an excess liquidity of about Nu 4 bn, but its officials expect large borrowers only after some hydropower projects are completed. “Domestic power consumption has reached its peak and no new industries can come up without power,” said Kipchu Tshering. There was no land either to set up new industries, although the government has made announcements to develop several industrial estates.

Kipchu Tshering said that there were no investment avenues within the country to utilise the surplus money. “Elsewhere, you have mutual funds, the stock market and government bonds. Here even the issue of government bonds isn’t consistent.”

The bank is waiting to invest several hundred million ngultrums as consortium financing to the Dungsam cement project, which announced earlier this year that it would borrow about Nu 2 bn domestically.

Despite the drip in profits, the bank declared a dividend of Nu 28.50 a share, the same as the previous year. It will paying Nu 101 mn as dividend, Nu 79 mn will go into reserves. As in 2008, Nu 50 mn has been set aside as reserve to build an office complex.

Source: Kuenselonline