KATHMANDU: Reliance Spinning Mills, which previously maintained a high share price by reporting a high net worth per share, recently published a report showing a decrease in the actual net worth per share, raising questions about its value.

The Public Accounts Committee of the House of Representatives has sought an explanation from the Securities Board of Nepal after allegations that Reliance Spinning Mills was allowed to issue shares at a high price without proper financial scrutiny. The Board had recently permitted the company to issue ordinary shares (IPO) to the public at Rs 820.8 per share through the book-building method on June 26.

Investors have questioned the company's value, alleging it hid potential liabilities to the Nepal Electricity Authority. As a result, institutional investors bought shares at a high price and sold them to the general public at a 10% discount, keeping the share price high.

The book-building method is a process used in initial public offerings (IPOs) to determine the price at which a company's shares will be offered to the public. The book-building method helps to ensure that the share price reflects market demand and allows for a more efficient and fair pricing mechanism compared to fixed-price offerings. This method has come under scrutiny due to disputes regarding the IPO of Reliance Spinning Mills.

The Public Accounts Committee has asked the Securities Board of Nepal to answer five specific questions within seven days. The committee is concerned about the safety of investors' investments, given that the company's earnings per share have been declining for the last three fiscal years. The committee also noted inconsistencies between the company's projected and actual financial statements. Last year, Reliance Spinning Mills reported earnings per share of Rs 54.34, but this has now dropped to Rs 2.8. The committee questioned whether there was manipulation in the preparation of the financial statements.

Additionally, the committee asked for clear information regarding the discrepancy between the projected earnings per share of Rs 54.34 for the year 2079/80 and the actual earnings per share of Rs 2.8 for the year 2080/81. The committee also questioned whether there was a conflict of interest between the institutional investors and the directors of Reliance Spinning Mills, as institutional investors bought shares at a high price.

The Board has been instructed to provide detailed information about which institutional investors applied for shares through the book-building method and at what price. Recently, IPO-eligible institutional investors bought shares of the company, which has earnings of Rs 2.8 per share, for Rs 912. The general public will be able to buy shares at a 10% discount, with 10% of the total shares issued to Nepalis employed abroad at Rs 820.80 per share starting July 11.