Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: The Securities Board of Nepal is set to revise the Securities Registration and Issuance Regulations to introduce new provisions for rights share issuances, ensuring greater benefits for existing shareholders. The proposed changes aim to prevent unsold rights shares from being auctioned to the general public, prioritizing current shareholders instead.
Under the existing rules, companies can sell unclaimed rights shares through a public auction at a premium price within seven days of allocation, generating additional revenue. The new policy will eliminate this practice, mandating that unsold shares be distributed proportionally among existing shareholders who apply for more than their entitled portion. Shareholders can now apply for shares beyond their allotted rights, with excess shares allocated in lots of 10 units based on demand.
Currently, if a company issues a 50% rights share, shareholders can only apply for shares equivalent to 50% of their holdings. For instance, a shareholder with 1,000 shares can apply for 500 additional shares. However, some shareholders fail to apply due to lack of awareness, leaving unsold shares that companies auction publicly. The new rules allow shareholders to apply for more than their entitlement, ensuring unsold shares are distributed among them, reducing the likelihood of public auctions.
“This change ensures rights shares remain exclusive to existing shareholders, not the general public,” a senior official said. The provision mirrors existing rules for small and medium enterprises (SMEs), though no SME has yet listed on the market. The new regulation will extend this framework to all companies, prioritizing proportional allocation of excess shares to eligible shareholders.
The revised rules benefit shareholders by allowing them to gain from market price differences. For example, if a company with a pre-book closure share price of NPR 500 issues a 50% rights share, the adjusted price post-closure is NPR 366.67. A shareholder holding 1,000 shares invests NPR 500,000 initially and NPR 50,000 for 500 rights shares at NPR 100 each.
If allocated an extra 100 shares, the shareholder gains NPR 26,667 (excluding taxes) by selling at the market price of NPR 366.67, enhancing returns. The change is expected to strengthen investor confidence and ensure fairer share distribution.
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