Why I didn't buy Janata Bank IPO shares

Last week was big for Nepalese investors. After a long gap, the investors got the opportunity to gain from an IPO listing in the form of Janata Bank IPO shares. Going by the trend in Nepal, the IPO shares are expected to at least double once the shares get listed in the share market, i.e. in two months time. This was enough for most of the Nepalese investors. The IPO shares were subscribed 3 times the allocated shares of 60 million.

Even though my friends were busy filling the IPO share forms, I was stubborn on not participating in this IPO. The reasons were purely based on my financial analysis of the bank rather than anything else. The main reasons were:-

1) Too much of leverage:
 In its two year of existence, Janata Bank had used a huge level of leverage (87%) to gain rapid growth. But with rapid growth came risky approach. As per Janata Bank statements, they thought a significant number of employees would be appropriately used after the IPOs. This means these employees are currently either under-performing or not needed by the company. The 60 billion Janata Bank raised from IPOs will reduce the leverage to 80%. This is a ceiling for many banks in the world. So, seeing the future, it will be very hard for Janata Bank to gain quick extra money to continue its rapid growth. All it can do for few years is to consolidate its growth.

2) Uneven distribution of Provisions for Bad loans in the past two quarters:
If you compare the income statements of last two quarters just before Janata Bank opened the IPOs, there seems significantly uneven distribution of Provisions for Bad loans. In the quarter ending 30.09.2068, the provisions is in the amount of about 60 million and in the quarter ending 30.12.2068, i.e. just before the IPOs were opened, the provisions is just for 23 million. Not surprisingly, the quarter ending 30.09.2068 has net loss of about 6 million, while the next quarter has net income of about 43 million. This could be a strategy of the bank to set a large portion of bad loans in the previous quarter, so that the statement just before the IPOs are very attractive to the potential investors.

3) Increase in exposure to real estate loans:
As all other banks in the country are trying to reduce their exposure to real estate loans, Janata Bank has increased the real estate loans by more than 3 times.  This is a very scary thing to do in the current scenario when the real estate prices are sliding down.

Picture Source : http://sharesansar.com

Although the IPOs "may" give to 10-40% gain in 2 months time, Janata Bank shares may not be ideal for long term investments.

Well this is just my thought. You can post in yours.

Teaching your children

With Kathmandu being the center of almost every good and bad thing in the nation, students are thronging the city with high hopes to get better education and future job prospects. Far away from home, they either reside in their relatives' homes or in hostels or in shared apartments. I often wonder if they are choosing the best option.

Picture Source :- http://cwsuk.org

Although there is no doubt in the quality of education you can get in the colleges/schools in Kathmandu compared to that in other parts of the country, leaving your home does have some dangerous consequences. (By home, I mean family.... not the concrete walls and ceilings)

Formal education is a big aspect in determining the future of any individual. But, we are missing the bigger factor while deciding on our future. The informal education that we get from our parents and family is even more important in shaping our ideology and our character than the formal education. Our upbringing molds us and thus defines our future.

Among the informal education, one can speak of values and culture we learn from our parents. The actions of our parents does have significant impact on our minds. Parents are the greatest role models one can ask for. It is the duty of parents to guide and shape their children to make them ready for the hardships of life in the future.

I get amazed when many parents try to escape from their parental duties and keep their children in hostels and other places. If they think that they can't shape their children in a good way, how can they trust the hosteliers to do so. Isn't it just a technique to strip yourself off the responsibility. How can you ask your children to have strong character when you are shying away from your responsibilities? Don't you think your children too will always run away from problems?

Apart from being role models, parents can become best friends with their children. If anyone understands their children the most, it is them-the parents. You may keep your children in paradise, but without family, the paradise would mean nothing. Being with your children will enable children to learn family values, ethics and of all, character.

Capital Markets in Nepal

Nepal seems to be moving towards the right direction with the introduction of CDS. It would be easier to trade shares of companies in the share market, thereby adding a huge number of investors to the stock market. This will in turn enable publicly traded companies to have pool of cash for future up-scaling of the company.

The infusion of huge amount of cash into the industries will also trigger the professional management movement in the numerous industries, till now many of these have been managed by family members - often less qualified than their employees. The sense of accountability along with installation of professional management will ensure better performance of the industries. This will in turn push the development to new heights.
Get ready to bull ahead with development.

Bias-free News

The way we think is heavily molded by the news and views we read. So, the journalists should recheck their findings before they publish it. When it comes to data visualization, journalists turn to their analysts. It is these analysts, whose comments form the base of the content journalist will pursue in writing.

Perception Vase - Different People, Different Perception

Although the processing of data has to be done following standard processes, the way analysts present and interpret them varies widely. A single number can have multiple interpretations. This is due to the varied psychology of analysts in understanding the data. So, when these data are presented by the analysts, rather than being neutral, these are often biased by analysts' cultural, religious, geographical and most importantly political background. If the analysis of data is itself biased, can we trust the news in the media be bias-free?

We certainly can't.