BNBL goes for a Nu 955M buy back 

Shares: The Bhutan National Bank Ltd (BNBL) is buying back its own shares worth Nu 955 million (M) from the International Finance Corporation (IFC), a unit of the World Bank.

In 2013, IFC became the largest foreign investor in the country purchasing about 20 percent of the bank’s share, working out to 5.1M shares valued at Nu 1.55 billion (B) or USD 29M.

IFC bought the shares at 1.75 times the book value of Nu 174 per share, which is Nu 306 a share.

Today the bank is buying back 35.48M shares negotiated at Nu 26.9 a share. This is because the Royal Securities Exchange slashed the face value by ten fold in 2014 to encourage more trading. The book value was brought down from Nu 100 a share to Nu 10.

This resulted in more shares with the shareholders, meaning that an individual owning 100 shares, for instance, now has 1,000 shares. The rights issue of shares has also resulted in more number of shares.

BNB CEO Kipchu Tshering said that initially IFC wanted to buy only 10 percent of the shares but it was not possible because FDI policy required a minimum of 20 percent investment from a foreign partner.

However, the minimum threshold for equity share holdings for foreign institutes investing in Bhutan was reduced to 10 percent, while amending the FDI policy, last year. But in case of individual foreign investors, the earlier provision still holds.

The IFC’s decision also comes at a time when BNBL wanted to bring down its capital adequacy ratio (CAR) from 25 percent to 20 percent. Thus the bank instead of issuing shares, will retain the shares bought back.

Capital adequacy ratio is the ratio of the bank’s capital to its risk which is crucial to ensure that the bank is in a position to absorb a reasonable amount of loss. This ratio is also essential to protect depositors and promote the stability and efficiency of financial systems.

As per the audited accounts of BNBL, the bank was able to fetch Nu 21.87B as deposits while it had booked Nu 19.57B for loans and advances. This takes the bank’s credit to deposit ratio at 89.4 percent.

As per the Companies Act, a company shall have the right to buy back its own shares from its free reserves, share premium account or the proceeds of a prior issue made specifically for the purpose of buy-back. However to approve such buybacks, a special resolution in the general meeting among shareholders is necessary.

BNBL has already called for an extraordinary meeting with its shareholders on April 11.

“The deal is not final until it is approved by the Central Bank, shareholders and the economic affairs ministry,” Kipchu Tshering said.

The IFC however is advising the bank in areas such as risk monitoring and corporate management. “This is an ongoing process,” he said.

The bank has declared a dividend of 14.1 percent after it made a profit before tax of over Nu 1B last year.

Tshering Dorji