What is Auction?
Auction is the process of selling assets to the highest bidder. Companies in stock market sometimes sell the shares in auction. In Nepal, companies generally invite sealed bids to sell unsold right shares through auction. They sell the shares to those investors who apply the shares at the highest price.
Some investors in Nepal have submitted the bid at the price more than the market price. This may be due to lack of adequate knowledge and information about the auction. It is essential that the investor make a wise decision in auction as s/he does in the secondary market. In auction, to pay more than the market price of shares of any company is to risk one’s capital.
You can purchase shares in the discount in auction.The cost and risk of purchasing shares in auction can be less than buying in the stock market as broker commission and DP fees have to be paid when buying in the secondary market. However, you should be careful and only purchase quality securities in auction.
How To Apply For Auction Of Shares? [Step By Step]
Many investors may not know how to fill out auction shares. Applying shares in auction is different than applying shares in IPO/FPO and right issue. In order to apply for the auction shares in Nepal, you need to following the steps:
Step #1: Read the auction notice published by the company carefully. Be fully aware about the available information. Follow the instructions as shown in the example below.
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Step #2: Decide the price and quantity at which you will purchase the shares in auction. You have to determine the price based on the number of auctioned shares and the current market price in the stock market. Always set your price at price lower than the market. If the supply of auctioned shares is huge, you can further lower your purchase price.
Step #3: Go to the respective Issue manager/merchant banker. (The company selects specific issue manger for the auction).
Step #4: Purchase the auction form at Rs. 100 from the counter of the issue manger.
Step #5: Account number is given in the form. You have to deposit the applied amount in the given account number. The total amount for the shares you want to buy should be deposited in the name of the issue manager in the designated bank account number.
Step #6: After depositing the amount in the bank, fill the form and enclose it in a sealed envelope with the deposit voucher. Submit the form to the issue manager.
Step #7: Take the receipt and keep it safe. In case of share allotment, the share will be deposited to your demat account after some time. If the shares are not allotted to you, the bid amount will be automatically credited to your bank account.
The issue manager will make the allotment by first selling the shares to highest bidder (one who has applied at highest price for each share). Then, the investor with second highest price will receive the shares and so on. So, you should determine the appropriate price for shares while applying for auction.
Following these simple steps, you can easily bid for auction shares. However, if you are still confused and want to have a full knowledge about the auction of shares in Nepal, study the example below:
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EXAMPLE: How To Apply For the Auction Of Shares In Nepal
First of all, the company will publish the notice regarding the auction of shares. See the sample notice published by the Shikhar Insurance in the image below:
The notice discloses all the information about the auction. You need to carefully read the important information such as:
1. Auction Time Period
This is the period in which the auction of shares will remain open. You need to submit your bid for the auction within this time period. This is highlighted by the ‘green box’ in the image above. From the notice, we know that Shikhar Insurance is opening the auction from Shrawan 21, 2077 to Shrawan 28, 2077.
2. Issue Manager
You should know which company is managing the shares auction. Generally, merchant bankers are the issue manager in Nepal. The ‘Sky Blue Box’ at the end of the notice, shows the issue manger. In this case, NIBL Ace Capital is the issue manager for the auction of shares of Shikhar Insurance.
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3. Place To Purchase and Submit the Auction Form
The ‘red box’ in the auction notice above shows this. These are the merchant banks and other banks and financial institutions from where you can purchase the auction form at Rs 100. After filling up the form, you should submit your form in these mentioned place.
4. Number of Auctioned Shares
How much shares does the company is going to auction? Before applying for auction, you need to know the total number of shares in auction. From above example, we know that Shikhar Insurance is auctioning 87,412.8 ordinary shares. The ‘blue box’ highlights the number of shares in the auction notice above.
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5. Minimum Price And Quantity
The ‘yellow box’ and the ‘orange box’ in the auction notice of Shikhar Insurance shows the minimum price per share at which you can apply and the minimum quantity one has to apply for. Now, we know that, an investor can apply for a minimum of 50 shares at a starting price of Rs 100 per share in case of Shikhar Insurance auction above. If you apply for less than 50 shares or at a price of less than Rs 100 per share, then your form will be cancelled.
6. Deposit In Bank Account/Cheque
After you feel up the auction form, you need to deposit the amount of your application on the mentioned account number. You can also write the ‘good for payment’ cheque while applying for auction. The ‘purple box’ in the auction notice above has highlighted the account number to deposit. For example, if you wish to apply for 100 shares of Shikhar Insurance at Rs 500 per share, you need to deposit Rs. 50,000 (500*100).
7. Other Information
You should also follow other information such as demat number, title for the auction envelope etc. These are underlined in the notice above.
Note: All these information are also available in the auction form as well.
Hope this was helpful to you. Please feel free to share your views in the comment section below.
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