KATHMANDU, March 25: The Securities Board of Nepal (SEBON) has increased the underwriting limit for merchant bankers allowing them to procure large amounts of unsubscribed primary shares of a company.
Amending the Securities Businessperson (Merchant Bankers) Regulations, 2008, the sector’s regulator has allowed merchant bankers for underwriting up to the net worth of their parent companies. However, the provision will be applicable only for the merchant bankers if their parent companies are banks or insurance companies.
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Underwriting refers to the mechanism in which a financial institution agrees to purchase unsubscribed shares of companies when they call for initial public offerings (IPOs). As of now, merchant bankers have been permitted to underwrite only up to three times of the company's net worth, regardless of the net worth of their parent companies.
The new provision is expected to expand the businesses of the merchant bankers. Due to the limitation as of now, merchant bankers have been unable to underwrite the stocks that have huge money value.
Similarly, the SEBON has adopted some flexibility in cases when subsidiaries of banks and financial institutions and insurance companies wish to obtain merchant banker licenses. The regulator has fixed a paid-up capital of Rs 70 million for merchant bankers engaged in underwriting business. Earlier in January, the SEBON had made arrangements permitting merchant bankers to issue IPOs.