Nepal’s capital market regulator moves to double lock-in period for private equity, Launches sweeping reforms

KATHMANDU: In a significant regulatory overhaul, the Securities Board of Nepal (SEBON) has announced plans to double the lock-in period for shares owned by private equity and venture capital firms following public issuance and allotment—from the current one year to two years. This move is part of SEBON’s newly released policy and program for the fiscal year 2082/83 (2025-26), aiming to tighten capital market regulations and promote long-term investment behavior.

This stringent reform is expected to have profound implications on capital market liquidity and the exit strategies of institutional investors, raising concerns among stakeholders about reduced flexibility in divesting holdings.

Sharp Reduction in Fees for PE/VC Firms Amid Tighter Rules

While extending the lock-in duration, the board has simultaneously proposed a 50% reduction in fund management, registration, and issuance fees for private equity and venture capital (PE/VC) funds. SEBON says this is part of a balanced approach—to encourage long-term investment while reducing entry barriers and improving capital mobilization through formal market mechanisms.

The board has also committed to introducing exit-friendly provisions, allowing PE/VC firms to liquidate their equity investments more efficiently once the investment tenure ends.

Structural Reforms: SEBON to Cut Political & Bureaucratic Influence

SEBON’s reform plan outlines an ambitious institutional restructuring to increase transparency and governance. The board plans to remove representation from the private sector and certain ministries, instead incorporating the Revenue Secretary and a Deputy Governor of Nepal Rastra Bank as formal members. Additionally, the number of expert members will be expanded to bring professional accountability.

Other critical reforms proposed include:

Facilitating secondary market transactions of government bonds

Promoting financial literacy and investment awareness

Enabling margin lending via licensed securities dealers

Mandating IPO issuance for hydropower companies only after electricity production begins

These changes are expected to streamline compliance, reduce speculative behaviors, and create a more mature capital market ecosystem in Nepal.

Focus on IPO Process, Derivatives, and Internationalization

SEBON has also moved to simplify and reduce the cost of IPOs and bond issuances for domestic manufacturing companies through:

Transparent premium pricing via book building

Restructuring of CDS and Clearing Ltd. for more efficient depository services

Supporting foreign investment in private equity and venture capital through specialized fund regulations

In a bid to internationalize Nepal’s capital market, the board also proposed collaboration with Nepal Rastra Bank to implement a Global Depository Receipt (GDR) framework. This will enable public companies listed in Nepal to raise capital from international investors by issuing depository receipts abroad.

Legislation on Equity Crowdfunding and Derivatives Market in the Pipeline

To modernize Nepal’s securities ecosystem, SEBON plans to:

Introduce legal provisions to permit equity crowdfunding

Develop infrastructure for a derivatives market

Enable state-owned enterprises to issue bonds rather than rely solely on government investment

These proposals mark a pivotal shift toward integrating alternative financing models and advanced financial instruments into Nepal’s investment ecosystem, aligning it with global capital market standards.

Achievements and Goals for FY 2082/83

SEBON claims it made significant progress in investor education, legal reforms, and market surveillance over the past fiscal year. The board says its FY 2082/83 plan will prioritize:

Development of a commodity exchange regulatory framework

Continued supervision and enforcement for investor protection

Strengthening research and capital market data analytics