The number of companies applying to the Nepal Securities Board for initial public offering (IPO) has reached 82. The number of companies in the process is piling up as companies regularly fail to obtain IPO approval, sometimes due to delays in the appointment of chairmen, sometimes due to employee protests, and other reasons.

In the past, energy producers had publicly protested against the Securities and Exchange Board of Nepal (SEBN) for asking for commission through agents in the IPO issuance of hydropower projects. The Commission for the Investigation of Abuse of Authority (CIAA) had also started an investigation into the matter. The investigation has not been concluded yet. However, the list of companies in the pipeline for IPO at the board is getting longer every day.  

Currently, companies in the pipeline for IPO are preparing to issue IPOs worth Rs 54.79 billion. The IPO approval process was stopped after the Securities and Exchange Board of Nepal (SEBN) became chairmanless in Poush 2080. The government appointed Santosh Narayan Shrestha as chairman in Mangsir 2081. Even after Shrestha became chairman, the IPO license was stopped for a long time. That is why only 20 companies received IPO permission last year.  

There is a legal provision that a company must issue an IPO within two months of receiving permission from the board. The companies concerned have complained that the capital planning schedule of the projects has been affected due to not receiving permission for the issue of shares for a long time.

The ordinance brought by the previous government mentioned that the government's work would be done faster, faster and more effectively. The Good Governance (Management and Operation) Act 2064, amended through the ordinance, states that the concerned officer will take a decision within seven working days of receiving the information, evidence or documents, considering the nature of the matter. But in practice, the board does not seem to have expedited the work of granting IPO permission.

Shrestha, Chairman of the Securities and Exchange Board of Nepal, admitted that the IPO approval process has been delayed due to various reasons. 'The board's job is not only to grant IPO permission, but also to grant permission for other instruments. But the market looks at how many people have received IPO permission. There has also been some delay in the IPO permission process,' he said. 'The delay is due to the employee agitation that has been going on for about two months.' To make the IPO approval process easier, we have made the financial analysis of companies a little easier.'

Shrestha claims that the IPO approval process will now accelerate. He said that although the file study of about 5/7 companies has been completed and is in the final stage, permission could not be granted due to employee agitation. Now those companies will get IPO issuance permission, said Chairman Shrestha. 'IPO permission should not be given to many companies at once. Investors are demanding that new IPOs only increase the supply of shares when there is no improvement in the demand side of the market,' he said. 'Therefore, we are giving permission for IPO after considering all aspects.'

Shrestha says that since he became the chairman, the board has given permission to 19 companies for IPO, four for FPO, one for preference shares, 16 for right shares, 9 for debentures, 26 for collective investment funds and four for systematic investment plans (SIP). The board has stated that the companies have received permission to issue various types of securities worth 90.36 billion 15.41 million rupees.

It has been stated that only companies with a net worth of more than 90 rupees per share will be included in the IPO pipeline. Earlier, the Public Accounts Committee of Parliament had directed not to proceed with the share issuance process of companies with a net worth of less than 90 rupees. Based on the same directive, companies with a net worth of less than 90 rupees will not be in the pipeline. In the past, the board amended the rules and made it possible to revalue the company and increase the value and calculate it in the net worth for the purpose of issuing IPOs. After companies that were going into 'liquidation' (disposal) also started issuing IPOs by increasing the valuation on their own, the parliamentary committee had directed to set a limit on net worth.

‘The board is directed to adopt a book building process where the price is determined by the competition of investors and to issue IPOs only to companies with a net worth of more than Rs 90 without revaluation,’ the committee said in its directive dated 12 Poush 2080.

According to the board, currently 82 companies have sought permission to issue 389,848,350 shares (IPO) to the general public. Five companies in the hotel and tourism sector have applied to issue 164,600,000 shares worth Rs 1.646 billion. 40 hydropower projects have applied to the board to issue 172,293,000 shares worth Rs 1765,659,000. Four companies under the investment group have applied to issue 146,500,375 shares worth Rs 3.141 billion.

19 companies in the production and processing sector are in the process of issuing 131 million 111 million 17 thousand 272 units of shares worth 27 billion 457.4 million 16 thousand rupees. Ganesh Karki, president of the Independent Power Producers Association of Nepal (IPPAN), says that the capital plan schedule of the hydropower project has been disrupted due to not receiving permission to issue shares for a long time and this has caused problems in the hydropower system itself.

When investors build a project, they are told to invest 70 percent of the capital themselves and raise the remaining 30 percent through share sale (equity). Out of this, 10 percent of the shares are distributed to the project-affected locals. 20 percent are distributed to other general public.

Karki said that the project has a resource problem due to not being able to issue shares on time. ‘When submitting the capital plan blueprint to the bank, it is promised that we will invest 70 percent of the capital now, and the remaining 30 percent will be sold to locals and general public within this time,’ he said. ‘The project work has been stopped for 22 months due to not being able to issue an IPO. Banks are not going to IPO, they are trying to ask for the remaining 30 percent money anyway. This has added more problems to the project.'

After issuing an IPO, a project takes a short-term loan from the bank on the condition of repaying the loan. 'Those companies have not been able to issue an IPO, now the bank is pressuring them to repay the loan,' said Karki. There is a legal provision that even hydropower projects must have a credit rating before issuing shares. Along with that, underwriting (an agreement that I will buy the shares if they are not sold) must be done.

The period of underwriting once done is only for 6 months. Chairman Karki also said that the project has suffered a huge financial loss as the Securities and Exchange Board of Nepal did not give permission to issue shares for a long time and had to re-underwrite every 6 months. Currently, three microinsurance companies have applied to the Securities and Exchange Board of Nepal for the issuance of 6.75 million IPO units worth Rs. 675 million.