The Nepal Weekly 
September 3, 2024
By Sharmila Thakuri
President, Female Economic Journalists Association
Damruballabh Ghimire sits in his room, spreading out share certificates from various companies. But most of these companies have never paid him dividends, and some have already been shut down. In this digital age of the stock market, the 73-year-old Ghimire’s share certificates, piled up in his house in Gaurighat, are over two decades old. As he pulls out the certificate of Raghupati Jute Mill, he says, “It’s been 20 years since I bought shares in this company. Although the company has consistently been profitable, it has never paid dividends. The profits have gone to the pockets of the directors instead.”
Rajkumar Golchha, a director at the company, also asserts that the jute mill is in profit. According to him, the company made a net profit of Rs. 7 crore in the fiscal year 2079-80. He argues that since the company, which exports 90 percent of its products to India, reinvests its profits into the business, dividends have not been distributed. “The general shareholders of this company want dividends just like banking institutions, but in a manufacturing company, profits are reinvested in production,” he clarifies.
As the company has been delisted from the Nepal Stock Exchange, investors like Ghimire, citing the lack of tangible returns, cannot trade their shares in the secondary market either.
Chhotelal Rauniyar, former president of the Investors Forum Nepal, says that some companies deceive investors by using existing loopholes. He states, “It’s unjust if a profitable company neither pays dividends nor allows trading in the secondary market.” He argues that companies should not be allowed to delist themselves from the market after raising investments from the public. “Shares are liquid assets and should be sellable when desired. However, some companies have delisted after collecting investors’ money,” says Rauniyar. “This shouldn’t be allowed.”
According to the Nepal Stock Exchange, 65% of shares in Raghupati Jute Mills are owned by Arihant Multi Fibers under the Golchha Organization, and 33.27% by the government. The remaining 1.37% of shares are distributed among 130 employees of the mill and the general public.
When Upasana Shrestha was 10 years old, she had invested in the Gorakhkali Rubber Industry. Now, at 44, however, all she has left is a deteriorated share certificate. Despite being an investor for such a long time, she hasn’t received a single penny in dividends from the company. “My father invested in my name, and many in my family have invested in the company as well,” Shrestha recalls, “Money invested in other companies have multiplied several times over. If I had put that same amount in a fixed deposit instead, I perhaps would have made a good profit. Now, what’s the point of decorating this share certificate!”
Gorakhkali Rubber Industry, under the ownership of the Nepal government, issued an Initial Public Offering (IPO) in 2047 BS. According to the Stock Exchange, the company, which had 10,485 shareholders, was 51% owned by Nepal Oil Corporation, Salt Trading Corporation Ltd., National Trading Ltd., and the Nepal Industrial Development Corporation (NIDC). The Asian Development Bank (ADB) held 13%, and general investors held 36%.
Due to political interference and arbitrary appointments, the company began to decline, leading ADB to sell its shares to Salt Trading. And after years of mismanagement, the company finally announced its closure in 2071 BS. However, the remaining shareholders have yet to receive any returns, let alone dividends. Former Secretary of Nepal Government, Krishnahari Baskota, says, “The company was ruined due to political interference. Political appointments, trade union issues, and incompetent staff recruited by political parties led to the company’s inability to adapt its production to market competition, resulting in its closure.”
As the company began to incur losses, the government kept increasing its investment, leading to a total of Rs. 1.03 billion in government shares in the industry.
Similarly, businessman Ramesh Wagle holds shares in Jyoti Spinning Mills. However, he discovered that the company had been liquidated without distributing any dividends. He also hasn’t received the principal amount he invested in the company’s shares.
Ratnasagar Shrestha, the head of the financial division of the Jyoti Group, which promoted the company, said that after the decision to close the company, an announcement was made for investors to come and collect their refunds. However, he did not disclose the exact date of the notice, the duration of the announcement, or how many were refunded. “I don’t know about these events which happened 20-25 years ago; I’m busy now,” he retorted.
Dinesh Bajracharya, who previously worked for Jyoti Mills and is currently employed at Syakar Company, also under the Jyoti Group, claimed that the company has been refunding the investment amounts to those who bring in share certificates. However, he did not provide details on where to go or whom to meet to receive the refund.
Delisting Debacles
In addition to the above companies, another 53 companies listed on the Nepal Stock Exchange (Nepse) have also vanished, taking public investments with them. Most of the companies listed on the stock exchange before the Securities Act 2063 came into effect no longer exist. Others still exist legally but have no traceable operations or assets. Companies like Nekon Air, Bansbari Leather Shoes, Birat Shoe, and Arun Vegetable Ghee Industries were once established in the market but are now closed. Investors in 56 companies, including Morang Sugar Mills, Biratnagar Jute Mills, and Shriram Sugar Mills, have not only failed to receive any dividends but have also lost their principal investments.
Detailed records of companies such as Nepal Med Limited, S. Laboratories (Nepal) Limited, Basbari Leathers Limited, Kathmandu Bread Industry, Pokhara Bread Industry, Hetauda Leather Industry Ltd., Indreni Soyabean Ltd., Everest Wool Industry, Agro Nepal, Himgiri Textile, E.L.S. Laboratories, Pokhara Bread Industry, Nepal Trade and Temple Ltd., and others are not available with the Nepal Securities Board or the Nepal Stock Exchange. Many of the share certificates that Damruballabh Ghimire had piled on his table belong to such defunct companies, where the general public’s investments have been lost.
In 2047-48 BS, the government had created provisions for a 10% tax exemption for any company listed on the Nepal Stock Exchange that issued an IPO. But former Finance Secretary Krishnahari Baskota has accused the private sector of misusing investors’ funds by issuing shares to a limited number of people to take advantage of this tax exemption. “Initially, the companies would raise money by selling shares, get the tax exemption, then manipulate the share prices, buy back the shares themselves, or shut down the company after raising investments,” he says. Baskota cites Nepal Metal Company as an example of how some promoters who issued IPOs manipulated the market to shut down the company.
According to Nepal Stock Exchange (Nepse), when Nepal Metal Company was established in 2033 BS, its paid-up capital was Rs. 9 crore. Of this, the government held 42.34%, the Khetan Group 27.57%, a Chinese company 26.17%, various government institutions 2.19%, and the general public 1.77%.
When the company needed additional capital to mine zinc and lead, the government increased its capital and raised its share percentage to 71.31%. The company’s accountant, Hari Prasad Ghimire, informed that the company’s paid-up capital reached Rs. 10 arab after the government’s additional investment, reducing the Khetan Group’s stake to 13.50%.
Subsequently, the Khetan Group filed a case against the capital increase in the Appellate Court in 2063 BS, but the court ruled in favour of the Nepal Metal Company. The Khetan Group then appealed to the Supreme Court in 2075 BS, but the Supreme Court also ruled in favour of Nepal Metal Company on Shrawan 10.
According to Ghimire, the government will decide how to operate the company only after receiving the full text of the Supreme Court’s verdict.
Investors like Damruballabh Ghimire and Ramesh Wagle accuse business operators of deliberately showing losses in companies to benefit themselves, leaving ordinary investors without dividends and eventually leading the companies to collapse. Ghimire claims, “Nekon Air started incurring losses in its second fiscal year after going public, mainly due to corruption by the directors when purchasing aircraft parts and other operational equipment.”
Another company that has sunk public investments and closed down is Shriram Sugar Mills. On Shrawan 9, 2077 BS, Shriram Sugar Mills announced its complete closure, citing losses of Rs 2 arab 17 crore 75 lakhs billion. The announcement stated that the company’s assets would be sold off to pay the remaining wages of the employees. However, after evaluating the company’s liabilities and assets, the remaining amount has not been distributed to general investors. The trading of shares in this company has been suspended for 16 years.
Golchha Organization alone has promoted four companies—Shriram Sugar Mills, Biratnagar Jute Mills, Raghupati Jute Mills, and Arun Vegetable Ghee Industries. Despite raising funds from the public, these companies neither paid dividends nor returned the principal investment to shareholders. Ghimire says, “All the companies the organization runs solely with their own investments are doing well, but once they take public investments, the company supposedly starts losing money and the business closes down taking the public’s investment with them.”
New Faces, Old Risks
This trend of leaving investors high and dry after issuing IPOs continues to this day. Recently, some companies that have raised funds from the public by issuing IPOs are showing signs of repeating history. The lack of strong regulation and corporate governance, means that the risk of ordinary investors being cheated continues to exist.
Nepal Republic Media Limited, the publisher of the newspaper Nagarik Daily, for example, raised Rs. 35 crore 25 lakhs through an IPO last year. Before issuing the IPO, the media company claimed that its earnings per share (EPS) would be Rs 7 and 22 paisa until the end of Chaitra 2079 (March-April 2023). However, just three months after selling its IPO, the EPS dropped to Rs 0.14 by Asar 2080 (June-July 2023). When the company issued its IPO, it had projected an EPS of Rs 5 and 55 paisa for the fiscal year 2080/81. By Chaitra 2080, the EPS turned negative to Rs. 0.54 per share. This shows that the media company misled the public with incorrect projections and data to sell its shares. There are many other similar companies that present attractive financial statements and deceive the public by selling shares at premium prices.
In Ashoj 2080 (September-October 2023), Sonapur Minerals & Oil Limited issued primary shares at Rs. 225 per share and collected Rs. 2 arab 18 crore and 98 lakhs. The company had shown an EPS of Rs. 7.8 in the fiscal year 2079/80 and promised future profits. However, after selling the shares at a high price, it is now found that the company is operating at a loss, and its EPS has turned negative. The company’s EPS, which was expected to reach Rs. 17.58 by Asar 2081, had actually fallen to a loss of Rs. 9.04 by Chaitra 2080. Despite claiming a net worth of Rs. 201.65 per share, the shares were only Rs. 170.73 by Chaitra. This indicates that Sonapur, a company associated with the Tayal Group with Ratanlal Tayal serving as the chairman, misled investors with incorrect information to encourage them to invest in the (to be continued)
