Nepal’s IPO landscape transformed: cabinet approves modified securities rules

KATHMANDU: The Cabinet meeting held on Tuesday has decided to introduce a more lenient approach towards the initial public offering (IPO) regulations. The approval of the Seventh Amendment to the Securities Registration and Issuance Regulations brings about these changes. The decision was made following the recommendation of the Ministry of Finance.

The revised regulations encompass several new provisions aimed at reforming the capital market landscape. Notably, companies with a paid-up capital exceeding one billion rupees will now have the privilege to issue shares at a premium price beyond the nominal value upon conversion into a public limited company.

Similarly, banks, financial institutions, and entities authorized by regulatory bodies in the insurance sector with a paid-up capital of at least one billion rupees will be permitted to launch IPOs at a premium within a year.

Previously, such entities were required to operate as public limited companies for at least one financial year to be eligible for an IPO.

Additionally, to issue shares at a premium, they had to maintain three consecutive years of profitability. On the other hand, companies with less than one billion in capital can issue premium-priced IPOs by calculating profits over three financial years.

Reports suggest that the Nepal Securities Board introduced these changes to encourage more companies to participate in the stock market.

Notably, businesses that have been operating as private limited companies for at least two financial years and subsequently convert into public limited companies are no longer bound by the completion of an additional financial year.

However, businesses operational for ten years or less are prohibited from issuing shares. This stipulation has been incorporated into the revised regulations, preventing companies with less than a decade of business operations from applying for securities registration and public issuance through the Securities Board.

Furthermore, for manufacturing industries with a capital exceeding one billion rupees, the amended regulations allow IPOs to be issued at a premium based on the profits of two financial years. The new regulations also simplify the process for private equity, venture capital, and hedge funds to trade shares.

The previous requirement that restricted the sale of primary shares to the general public for three years after the prospectus publication has been adjusted.

The revised Securities Registration and Issuance Regulations permit private equity funds, venture capital entities, and hedge funds to sell shares within just one year.

Additionally, the updated regulations introduce a pathway for green bonds. Organized institutions are now allowed to issue green bonds, as well as other bonds or debentures of a similar nature, provided they receive approval from the regulatory board.