Nepal Share Market and Finance (NSMF) has signed an agreement with Global IME Bank and Siddhartha Bank, which has allowed NSMF to sell Star Mall. The finance company will use the money received from the sale of the business complex located in Putalisadak, Kathmandu, to pay the interest of the loans taken from the banks to develop the property, as per the agreement.

The crisis-ridden finance company plans to the recover around Rs 1.72 billion embezzled by its former executive chairman Yogendra Shrestha by selling the property, which is owned by a firm Shrestha has promoted. Likewise, the two banks are seeking to recover around Rs 350 million lent to Shrestha against the collateral value of Star Mall.

As per the agreement, the finance company will sell the business complex within a year and will pay the outstanding interests by the time the property is sold. “The two sides signed the agreement under the coordination of the Nepal Rastra Bank (NRB),” said a senior central bank official.

The NRB encouraged the two parties to go for such an agreement, fearing that the business complex could be sold at a cheaper price if the banks put the property up for auction, making it difficult to repay depositors’ money. The central bank has been barring the banks from auctioning the property for the last few months.

Recently, NSMF had issued an auction notice to sell the mall, but found no buyers even after two deadline extensions. Although the central bank had estimated the value of the property at Rs 1.3 billion, the finance company had sought to sell it at around Rs 900 million considering the recession in the real estate market. An NSMF official said talks were underway with some interested parties.

As the finance company has not been able to recover any significant amount from Shrestha, NSMF officials say a big chunk of the embezzled amount could be recovered if the mall is sold. Shrestha embezzled  Rs 1.72 billion from the finance company by creating fake loanees, according to a due diligence audit (DDA) report. He created 96 bogus borrowers and took the money himself.

NSMF has so far recovered Rs 150 million from Shrestha by selling his shares in Machhapuchchhre Bank. It has also been able to recover a substantial amount of loans issued to other loanees; as a result, its liabilities to the depositors have decreased considerably over the last year.

When the fraud at NSMF was exposed on May 9, 2011, the company had deposits worth Rs 3.12 billion, which have now come down to less than Rs 1.5 billion. Its lending has also come down to Rs 1.37 billion from Rs 5.26 billion over the period.

The finance company has also recovered Rs 375.5 million deposited in Star Savings and Credit Cooperative.

source: The Kathmandu Post,30 jan 2013