The Securities Board of Nepal (SEBON) has raised the underwriting limit for merchant bankers, enabling them to procure larger amounts of unsubscribed primary shares of a company.
Amending the Securities Businessperson (Merchant Bankers) Regulations, 2008, the regulator has now allowed merchant bankers to underwrite up to the net worth of their parent companies. However, this provision will only apply if their parent companies are banks or insurance companies.
Underwriting refers to the mechanism in which a financial institution agrees to purchase unsubscribed shares of companies during initial public offerings (IPOs). Previously, merchant bankers could only underwrite up to three times their net worth, regardless of their parent companies’ financial strength.
The new provision is expected to expand the business opportunities for merchant bankers, who have so far been restricted in underwriting stocks of high monetary value due to existing limitations.
SEBON has also introduced flexibility for subsidiaries of banks, financial institutions, and insurance companies seeking merchant banker licenses. Additionally, the regulator has set a paid-up capital requirement of Rs 70 million for merchant bankers engaged in underwriting.
In January, SEBON had made further provisions allowing merchant bankers to issue IPOs, reinforcing their role in Nepal’s capital market.
