Why is Nepal’s Securities Board Postponing IPO Issues?

January 2, 2025
Why is Nepal's Securities Board Postponing IPO Issues?

It has been a month since Santosh Narayan Shrestha assumed the role of Acting Chairman of the Securities Board of Nepal.

After his appointment as chairman, there was much speculation that a surge in IPO (Initial Public Offering) issues would take place. However, despite a month passing since he took office, no company has received approval for an IPO issue. He was appointed to the chairman’s position on December 10.

Following his appointment, there were discussions that a flood of IPOs would occur, potentially impacting the secondary market as well. Companies that have been in the pipeline for over a year have been asked to update their financial details, according to spokesperson Niranjay Ghimire.

“When companies submit their applications to the board, they usually present financial statements from that period, but since a lot of time has passed, we’ve asked them to send updated information,” he said. “Once the new details are received, we will approve the IPO for those who have completed the process.”

Rather than giving approval for all IPOs at once, the approval will be granted to companies sequentially once they have completed the process. “It’s incorrect to say that there will be a rush of IPOs all at once. They will be issued sequentially,” he explained.

On December 26, 2023, the Public Accounts Committee directed the board not to approve IPOs for hydropower companies with a net worth of less than 90. This directive has also made IPO issuance difficult, according to another senior official.

Most of the hydropower companies seeking IPO approval currently have a net worth below 90. “Either this directive needs to be amended, or else ignoring it may raise questions for the board in the future. Therefore, it’s currently difficult to approve IPOs for hydropower companies,” the official said.

Before Shrestha’s appointment as chairman, Garden Micro Life Insurance Company had received approval for its IPO. Since then, no other companies have received approval.

After his appointment, rights and FPO (Follow-on Public Offering) issues have taken place. Currently, there are 82 companies in the IPO pipeline at the board, seeking permission to issue IPOs worth a total of NPR 49.81 billion.

Among the companies in the pipeline, most are from the hydropower sector. A total of 41 hydropower companies have requested approval to issue IPOs worth NPR 16.52 billion.

Similarly, 7 companies from the hotel and tourism sector have requested approval to issue IPOs worth NPR 3.31 billion. Three companies from the investment group sector have sought permission for IPOs worth NPR 2.84 billion.

Fifteen companies from the production and processing sector have requested approval for IPOs worth NPR 22.68 billion, while 10 companies from other sectors have requested permission for IPOs worth NPR 3.32 billion. Additionally, one microfinance and five micro-insurance companies have applied for IPO approval.

Many companies that have been waiting for a long time to issue IPOs are facing losses in billions. Ganesh Karki, President of the Independent Power Producers’ Association of Nepal (IPPAN), stated that the inability to raise capital through public offerings for a long time has resulted in significant losses.

“Projects are planned to raise capital through both debt and equity, and construction proceeds accordingly,” Karki said. “Now, projects that are nearly complete are facing issues. Without equity, banks are reluctant to provide loans. Even if loans are granted, the interest rates increase the overall cost.”

Due to the lack of primary market offerings, long-term costs have escalated. “Currently, some projects are forced to slow down due to lack of funding,” he added.

Among the companies in the IPO pipeline at the board, the majority are hydropower companies. Additionally, there are companies in sectors like hospitals, media, pharmaceuticals, steel and cement production, and commercial complexes.

Of the companies seeking IPO approval, two are hotels and Nepal Broadcasting Channel, which will issue shares at a nominal value of NPR 50 per share. Ten other companies have requested approval for IPOs with a premium, seeking to issue shares at over NPR 100 each.

Shivam Holdings has applied to issue IPOs at NPR 210, Jagdamba Steel at NPR 300, Saurya Cement at NPR 264.5, Maruti Cement at NPR 377, Riddhi Siddhi Cement at NPR 214.1, Ambe Steel at NPR 303, Hams Hospital at NPR 288, Kailash Helicopter at NPR 327, Century Energy at NPR 275.1, and Chayadevi Complex at NPR 400 per share.

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