Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: In a significant move to address growing concerns over Initial Public Offering (IPO) approvals, the Ministry of Finance has directed the Nepal Stock Exchange Board (SEBON) to implement stricter scrutiny of companies seeking to issue IPOs.
The directive, issued on June 23, mandates SEBON to thoroughly evaluate the financial and managerial aspects of applicant companies before granting approval, following a recommendation from the Commission for Investigation of Abuse of Authority (CIAA) made one and a half years ago.
The ministry’s letter to SEBON emphasizes the need for objective company ratings and credible valuation methods for determining premium pricing to curb potential financial irregularities. “SEBON must conduct a comprehensive review of a company’s financial and managerial health before approving an IPO,” the directive states. “Ratings must be unbiased, and premium pricing should follow reliable valuation methods to eliminate risks of manipulation.”
The directive comes amid escalating controversies surrounding IPO approvals. The Independent Power Producers’ Association, Nepal (IPPAN), recently accused SEBON Chairman Santosh Narayan Shrestha of demanding 5-7% commissions for facilitating IPO approvals, sparking public outcry.
Following these allegations, a CIAA team visited SEBON to investigate, collecting details of companies in the IPO pipeline. The scrutiny intensified as SEBON faced delays in approving IPOs, particularly for hydropower companies, even after Shrestha’s appointment.
The Public Accounts Committee, in a December 27, 2023, directive, had instructed SEBON to deny IPO approvals to companies with a per-share net worth below NPR 90 and to prioritize the book-building method over premium pricing.
It also mandated that hydropower companies refrain from selling one-third of promoters’ shares until project loans are cleared and required companies with over NPR 5 billion in paid-up capital to convert to public limited status within a year. SEBON, citing these instructions, removed applications from companies with net worth below NPR 90 from its pipeline.
However, the Finance Committee, on May 12, countered that no legal provision exists to block IPOs for companies with a net worth below NPR 90, urging SEBON to follow existing laws. This contradiction has left SEBON in a bind, halting hydropower IPO approvals while approving those for microfinance and insurance firms.
The Finance Ministry’s latest directive aims to resolve these inconsistencies and restore investor confidence. “With limited investor education and a developing securities market, listed companies must be financially robust,” a ministry official said. “This directive, aligned with CIAA’s recommendations, ensures SEBON adopts transparent and effective IPO approval processes to protect investors.”
As SEBON navigates these conflicting directives, the ministry’s call for stringent oversight signals a push for greater accountability in Nepal’s capital market.
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