SEBON moves to tighten IPO rules with sectoral criteria to curb financial manipulation

KATHMANDU: Nepal’s capital market regulator, Securities Board of Nepal (SEBON), is preparing to introduce sector-specific eligibility criteria for companies seeking to issue Initial Public Offerings (IPOs), in a significant policy shift aimed at curbing financial statement manipulation and protecting investors.

The move comes amid growing concerns that companies have been inflating or misrepresenting financial data to raise funds from the public under the pretext of IPOs.

SEBON officials say the new framework will enforce stricter accountability at the application stage itself, allowing only companies that meet defined financial and operational benchmarks to enter the primary market.

Draft Framework Ready, Board Approval Pending

SEBON has already prepared a draft of the new standards, formulated by a study committee led by Anandraj Sharma Wagley, Vice President of the Institute of Chartered Accountants of Nepal and a SEBON board member. The draft has been submitted to SEBON’s board of directors for final approval.

Once endorsed, the criteria will be enforced prior to IPO approvals, fundamentally changing how companies access Nepal’s equity market.

Accountability Shift: From SEBON to Issue Managers and Auditors

A central feature of the reform is the redistribution of accountability across key intermediaries—particularly issue managers (merchant bankers) and auditors.

Currently, issue managers often submit company financials to SEBON without rigorous due diligence, leaving the regulator’s internal chartered accountants to verify disclosures.

Under the proposed system, issue managers will be required to conduct deeper financial scrutiny, identify “trigger points” in financial statements, and perform enhanced due diligence analysis (DDA).

“By forcing issue managers to flag financial inconsistencies and risk indicators, we are making them directly accountable for the credibility of IPO-bound companies,” a SEBON source said.

In addition, external auditors will also face stricter responsibility, ensuring that any discrepancies or manipulative reporting are detected earlier in the process.

Sector-Specific Financial Benchmarks

The new framework introduces sectoral standards based on key indicators such as cash flow, operational sustainability, and financial health. SEBON is particularly focusing on loosely regulated sectors including:

Hydropower
Manufacturing and processing
Hotels and tourism
Investment companies

Unlike banks and insurance firms—which are governed by dedicated regulators—these sectors currently lack strong oversight, making them more vulnerable to financial misreporting.

Officials say minimum thresholds and stricter benchmarks will be imposed, especially on tourism, hydropower, and manufacturing firms, where IPO-driven capital raising has surged in recent years.

Preventing Market Distortions

SEBON insiders warn that without reform, the IPO market risks being flooded with low-quality or non-viable companies.

“If the current system continues, even small guesthouses could enter the market under the guise of IPOs just to raise funds,” a senior official noted. “These standards are designed to prevent such distortions and restore investor confidence.”

Broader Regulatory Reforms Underway

Alongside the new criteria, SEBON is also working to amend the Securities Registration and Issuance Regulations, incorporating provisions for:

Improved IPO issuance mechanisms
Internal financial control reporting requirements
Qualification standards for auditors of listed companies

These reforms are expected to strengthen Nepal’s capital market governance framework and align it more closely with international best practices.

Market Implications

The introduction of sector-based IPO criteria marks a critical evolution in Nepal’s equity market, signaling a shift from a disclosure-based regime to a more compliance-driven model.

While the move may slow the pipeline of IPO approvals in the short term, analysts believe it will enhance market integrity, improve investor protection, and attract more credible long-term capital into Nepal’s financial ecosystem.