Are the prospectus just for name sake ???

It is a well-known fact that a company needs to publish a prospectus before its public issue. The prospectus is a legal document that contains every single detail about a company that matters an investor, so as to invite them to invest in the company. An investor then pours his hard earned money in the company relying the data mentioned in the document.

Since an investor can’t enter a company and check every single document, he blindly needs to trust the information conveyed through the prospectus. To assure the validity, the directors and the key official signs it. The document is later verified and approved by the securities board, and it is only then the document reaches the investors.  

But what if the data and the key information conveyed via the prospectus are misleading? What if an investor loses his money relying the wrong information? Who is responsible for the loss?

Well, the issue of publishing wrong prospectus is a blunder. But the matter seems to be taken lightly in our country. No one raises voice against it and no one is punished. Some among the many examples of this blunder are presented here:

 

NMB Bank FPO

The company is currently going through a gigantic public issue. The jumbo issue of over 1 crore units at a premium price, is on its 3^rd day and the company is said to have collected over 80 crores from more than 28000 investors. But the prospectus published by the company before this offering seems to be misleading. The company approached sebon for FPO approval on 22^nd Jestha, 2074 and submitted a prospectus. 1 year later the company was granted a green signal and the company has presented the same old prospectus to public.

The data in the documents are not updated and still contains the wrong data. The balance sheet, P&L statement and the all the financial ratios for the year 2073/74 were projections and the same are now published in the prospectus. At the time when real figures for fy 2073/74 could have been presented and informed the interested investors about the present situation of the company.

Wasn’t this the responsibility of the company to update the latest data?

 

Siddhartha Insurance Right     

A leading non-life insurance company, Siddhartha Insurance is on a verge of floating right shares from 17^th Ashad, 2075 and for this purpose the company has published an offer letter. In the projection for future years, the company has shown no sign of capital increment. The right issue will hike the company’s capital to Rs 86.49 crores and the company has projected to have the same paid-up capital for next 3 years. It is a well-known fact that the non-life insurance companies need to have a paid-up capital of 1 arba by mid-july 2018.

The low capital and the rising profit, published by the company, has made the financial ratios look more beautiful. This mistakes may look minor but can have big consequences.

 

 

Mutual Fund Prospectus

The benchmark index of the only stock exchange in Nepal is currently in a sluggish trend. Most of the mutual funds are losing money and many of them currently have a Net Assets Value (NAV) below their face value. But at the time of the public issue, all the mutual funds had published exciting but hypothetical projection of NAV and dividends, for the future years. It was due to the projections, a lot of investors subscribed for mutual fund units.

But currently, not even a small percentage of their projection is reflected in their performance. If the projections are meant to be fully hypothetical, baseless and unscientific, what’s the point of publishing projection?