KATHMANDU, Feb 12: The Securities Board of Nepal (SEBON) is unlikely to approve share issuance for most companies that applied to issue shares to the public.
Most companies previously applied to issue 10 percent of their shares through IPOs. However, SEBON has now adopted a policy that requires companies to issue a minimum of 20 percent of their shares to the public, which has created challenges for these companies.
Some companies have recently attempted to manipulate the secondary market by issuing only a small number of shares through IPOs. In response, SEBON has enforced a policy requiring companies to issue at least 20 percent of their shares to the public. As a result, companies in sectors such as hydroelectricity, hotels and real estate, which have applied to issue only 10 percent of their shares, will not receive approval unless they increase the portion of shares issued to the public, according to SEBON sources.
Some companies have recently tried to manipulate the secondary market by issuing a small number of shares through IPOs. To counter this, the board is enforcing a policy that mandates companies to issue at least 20 percent of their shares to the public. As a result, companies in sectors like hydroelectric, hotels, and real estate, which have applied to issue only 10 percent of their shares to the public, will not receive IPO approval unless they increase the portion of shares issued to the public, according to SEBON sources.
Ramesh Hamal, the then-chairman of the SEBON, approved IPOs for companies with extremely low net worth, turning the secondary market into a casino. As a result, companies that are now in losses and will never be able to provide dividends to investors have inflated their share prices under the guise of low-cap stocks.
The Public Accounts Committee of Parliament directed the relevant authorities to create a policy to prevent companies with a net worth below 90 from issuing IPOs in order to curb this malpractice. However, the authorities have not yet established the policy and regulations. Following this issue, the Commission for the Investigation of Abuse of Authority (CIAA) and the Department of Money Laundering Investigation are investigating the former chairman, Ramesh Hamal, and others involved. Sources from the CIAA confirmed that final investigations are ongoing regarding the former chairman and those involved.
Currently, most of the hydropower companies and some real estate companies that have applied to SEBON have a net worth below 90, and their share issuance ratio to the public is low. As a result, these companies are unlikely to receive approval for their IPOs. Presently, 7 companies from the hotel and tourism sector, 42 from the hydropower sector, 3 investment companies, 15 from the manufacturing sector, one microfinance company, 3 microinsurance companies, and 11 companies from other sectors have applied for IPOs with SEBON.