The Securities Board of Nepal (SEBON) is unlikely to approve share issuance for most companies that have applied for initial public offerings (IPOs). This follows SEBON’s recent policy change requiring companies to issue a minimum of 20 percent of their shares to the public, up from the previous 10 percent threshold.
The stricter policy was introduced after some companies attempted to manipulate the secondary market by issuing a small number of shares through IPOs. In response, SEBON now mandates a higher share issuance percentage, affecting companies in sectors such as hydroelectricity, hotels, and real estate. Unless these companies increase their public share allocation to at least 20 percent, they will not receive approval, according to SEBON sources.
Regulatory Scrutiny and Market Concerns
Under the leadership of former SEBON chairman Ramesh Hamal, IPO approvals were granted to companies with extremely low net worth, which contributed to excessive speculation in the secondary market. Many of these companies, now facing financial losses, inflated their share prices by positioning themselves as low-cap stocks, misleading investors.
In response to such practices, the Public Accounts Committee of Parliament directed regulatory bodies to implement policies preventing companies with a net worth below 90 from issuing IPOs. However, these policies have yet to be formally established. Meanwhile, the Commission for the Investigation of Abuse of Authority (CIAA) and the Department of Money Laundering Investigation are conducting final inquiries into former chairman Ramesh Hamal and other individuals involved in past IPO approvals.
IPO Applications in Limbo
Currently, a significant number of companies that have applied for IPOs fall below the net worth threshold and do not meet SEBON’s revised share issuance requirement. As a result, their IPO approvals remain uncertain. Among the pending applications are:
- 42 hydropower companies
- 7 hotel and tourism companies
- 15 manufacturing companies
- 3 investment companies
- 1 microfinance company
- 3 microinsurance companies
- 11 companies from other sectors
Unless these companies adjust their public share issuance to comply with SEBON’s new policy, they are unlikely to secure IPO approval. The regulatory changes mark a significant shift in Nepal’s capital market, aiming to enhance transparency and protect investors from market manipulation.
