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 demanding 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. Therefore, only 20 companies received IPO permission last year. 

The companies concerned have complained that the capital planning schedule of the projects has been affected due to not receiving permission for the issuance of shares for a long time. The ordinance brought by the previous government mentioned that the government's work performance should be made faster, faster and more effective. The Good Governance (Management and Operation) Act 2064, amended through an 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. 

Securities Board Chairman Shrestha 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 it is seen that how many have received IPO permission in the market. 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 permission process more smooth, we have made the work of financial analysis of companies a little easier.’ 

Shrestha claims that the IPO permission 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, the employee agitation has not been able to grant permission. Now, those companies will get IPO issuance permission, said Chairman Shrestha. Shrestha said 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, nine for debentures, 26 for mutual funds and four for systematic investment plans (SIP). The board has stated that these companies have received permission to issue various types of securities worth Rs 90.36 billion 15.41 million. 

It has been said that only companies with a net worth of Rs 90 per share will be included in the IPO pipeline. Earlier, the Public Accounts Committee of Parliament had directed not to proceed with the process of issuing shares of companies with a net worth of less than Rs 90. Based on the same directive, companies with a net worth of less than Rs 90 will not be in the pipeline.

In the past, the board amended the rules to allow companies to revalue and increase their value and count it in the net worth for the purpose of issuing IPOs, and after companies going into 'liquidation' (disposal) started issuing IPOs by increasing their valuations, the parliamentary committee had asked to set a limit on net worth. 'The board is directed to adopt a book building process where prices are determined through competition and to work in a way that only companies with a net worth of more than Rs 90 can issue IPOs without revaluation,' the committee said in its directive issued on 12 Pus 2080. 

According to the board, currently 82 companies have sought permission to issue 389 million 84 thousand 835 shares (IPO) to the general public. Five companies in the hotel and tourism sector have applied to issue 164 million 60 thousand IPOs worth Rs 1.64 billion.

40 hydropower projects have applied to the board to issue 172,293,000 shares worth Rs 17,656,590,000. Four companies under the investment group have applied to issue 146,500,375 shares worth Rs 3,141,103,700 in IPO.

19 companies in the production and processing sector are in the process of issuing 131,117,272 shares worth Rs 27,457,416,000. Ganesh Karki, president of the Independent Power Producers Association of Nepal (IPPAN), said that the capital planning schedule of the hydropower projects has been disrupted due to the prolonged absence of permission to issue shares, which has caused problems in the hydropower system itself.

Karki said that the project has a resource problem due to the inability to issue shares on time. "When we submit the capital plan to the bank, we promise to invest 70 percent of the capital now, and sell the remaining 30 percent to locals and the general public within this time," he said. "The project has been stalled for 22 months due to the inability to issue an IPO. Banks are not going to go ahead with the IPO, and they are insisting that the remaining 30 percent money should be invested 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," Karki said. 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 had to re-underwrite every six months because the Securities and Exchange Board of Nepal (SEB) did not give permission to issue shares for a long time, resulting in huge financial losses. Three micro-insurance companies have applied to the Securities and Exchange Board of Nepal (SEB) for the issuance of 6.75 million IPO units worth Rs. 675 million.