Founder shareholders and private sector organizations have protested against the proposed system of keeping the founder and common shares separate by CDSC as it is against international policy and practice.
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The Ministry of Finance has shown interest in the dispute regarding the separation of founder and common shares of companies. The ministry has also instructed the board to resolve the dispute.
Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel directed the Finance Secretary and the Revenue Secretary to understand the truth about the issue of making separate International Securities Identification Number (IZIN) for the founder and common shares as the controversy escalated and protests started coming from the umbrella organizations of the private sector. On Monday, based on the same directive, the Ministry of Finance called Nepal Securities Board Chairman Santosh Narayan Shrestha, NEPSE Chief Executive Officer Chudamani Chapagain and CDS & Clearing Managing Director Pravin Pandak for discussion. Finance Minister Poudel did not participate in the
discussion. But Finance Secretary Dhanshyam Upadhyay, Revenue Secretary Dinesh Kumar Ghimire have discussed with officials of SEBON, NEPSE and CDSAC. In the discussion, Pandak, managing director of CDSC, said that operational guidelines for dematerialization of securities have been created to make the capital market orderly and reliable. Chapagain, Chief Executive Officer of NEPSA, said that in order to reduce the distortions seen in the market and to make it orderly and reliable, arrangements are going to be made to separate founder and common shares.
Securities Board Chairman Shrestha said that since they are studying the securities dematerialization operational guidelines created by CDSC, appropriate decisions will be taken. After listening to the views of all the three bodies, the ministry has instructed SEBON to do according to what is done to make the market orderly and transparent, what are the international practices, how to protect the investors' property.
"We have told the Securities Board that you should settle this dispute yourselves, do what is in the interest of the investors, the company and the capital market as a whole," the source said, "Also pay attention to how good governance can be maintained in the market."
Founder shareholders and private sector organizations have protested against the proposed system of keeping the founder and common shares separate by CDSC, saying that it is against international policy and practice. Organization of Independent Power Producers (IPPAN), Chamber of Commerce and other bodies have opposed it institutionally.
They claim that the proposed arrangement will further deteriorate the investment environment in Nepal, saying that it is against international practice and will create obstacles in investment expansion for founder investors. Ippan has also drawn the attention of 4 bodies including Finance Minister, Parliament's Finance Committee, SEBON and CDSC, demanding the cancellation of the double IJIN system. According to Ippan, the proposed arrangement will pledge 1 trillion 28 billion founder shares.
Nepal's stock market is still in its infancy for three decades, essential infrastructure is not being built, and the leadership of the regulatory body is not being selected in a fair and transparent manner. Their support is seen in the recently issued guidelines by CDS. A number given for management of physical shares converted into electronic (dematerialized) shares is the ID number.
The operational guidelines related to dematerialization of shares from CDSC went to the board for approval last Monday. The board says that the guidelines are under study. In the
guidelines, a provision has been proposed for all other sectors, like banks and financial institutions and insurance companies, to separate the founders and common shares, and to give different IDs. According to the guidelines, the companies have to classify the dematerialized (converted into electronic) securities into two groups, founders and general public, as per their articles of association and regulations. There is a 'lock-in' period of three years for founder shares of companies.
The shares of such a group cannot be sold during that period. In the case of companies in the mentioned sector, even after the 'lock-in' period is over, the process including the permission of the relevant regulatory body must be completed to convert the founder's shares to the general public.
But now a single e-name is given for companies in sectors including hydropower, investment, production and processing (except banks and financial institutions and insurance). Founder and common shares are being held in the same name.
companies cannot sell founder shares for three years (lock-in period) after the IPO allocation. Even if you stay in the same account, the founder's shares are withheld during the 'lock-in' period, while only ordinary shares are traded. After completion of three years, after 12:00 midnight, founder shares are automatically converted into common stock and open for sale in the market at the same price.
