A Beginners guide for investors. Know about the Auction and its procedure.

 

we had discussed the right and bonus shares in our previous article "A Beginners guide for Novice Investors-3". In this article, we will discuss about the auction and its procedure.

AUCTION:

As the history of the auction is not so old in the context of Nepalese stock market, but the craze of auction nowadays has overwhelmed the market. As the companies are toiling at capital expansion through the issue of right and bonus shares but chiefly every companies right are not fully occupied and they are capitalized through auction.
In a layman word, auction means a public sale in which goods or property are sold to the highest bidder, but in stock market Unclaimed, seized and matured Mutual Fund Portfolios are issued to a public through an auction. Mainly auction is done due to three reason, the first one is unclaimed right shares. As the company issue right share to its existing shareholders for raising capital of the company in the proportion of share owns before the book close for this purpose. When the right shares are not fully subscribed, the company sell the remaining shares through the public bidding which is known as the auction. This is the main reason for auction but there are others too.
 The second one is the ceased shares. If the company ceased the share of any investors due to some default, these shares are floated to the public through an auction. One of the best examples of this auction is the shares of Mr. Guru Prasad Neupane’s ( a whilom director of Janata Bank Limited), whose 85,000 unit shares were impounded after proven guilty of banking fraud by NRB and his shares were taken into an auction. 
The third one is the Portfolio of the matured mutual fund which is liquidated through auction. When any mutual fund is ripened their portfolio are sold and Distributed to the mutual fund’s units holders. Recently Nabil Balance Fund got matured on Chaitra 29, 2074 and it is auctioning its portfolio through auction. 

 Process of Auction:
•    One should visit the appointed issue manager’s office for that very auction for collecting bidding form.
•    Interested investors should write the bidding price and the quantity of the shares in the bidding form. The Bidders can bid minimum 100 units at a price of Rs 100 for shares but the price for Debenture is Rs 1000 per unit.
•    The bidding form should be inside the envelope and sealed, with the bidder’s name, address and DMAT number on the envelope.
•    The total bidding amount should be either by Good for Payment Cheque or by depositing into the issue manager’s bank account and the bidding form should be submitted before the closing date for the auction.
•    After some days of auction closing the issue manager published a notice specifying a bid opening date.
•    The shares are allotted according to the highest bidding price and the bidders bidding the share price up to cutoff price are allotted shares and refused bidder's amount are returned to their bank account within some days or paid through a  A/C payee cheque.

 

Before bidding on the auction one should know about the price which has been trading in the secondary market. Investors should consider all factors like the discounted price, time value of money before bidding their price.