Securities Board of Nepal (Sebon) has set four criteria on stock pricing for further public offering (FPO).

As per the new standards, listed companies should base the pricing on capitalised earnings, net worth per share or book value per share, 180 days’ average of closing market price and discounted cash flow (current price of cash flow to be achieved in the future). A company should determine the stock price for FPO based on the average price of different prices calculated under the four criteria, read a Sebon statement.

The stock regulator realised the need for setting the standards for FPO pricing after Nepal Life Insurance Company (NLIC) fixed its per share price for its planned FPO at Rs2,951 in premium, which was considered higher.

Flowing NLIC’s announcement, Sebon halted the trading of its shares, seeking necessary documents for determining the FPO price. Later, the regulator lifted the ban, but made it clear that NLIC’s FPO pricing would be legitimised only after the release of the new standards so that all the listed companies would follow the same rules.

Many Banks and Financial Institutions (BFIs) are considering FPO in order to increase their capital to the required level. As per the central bank’s directive, the BFIs have to raise their minimum paid-up capital four-fold by the end of the fiscal year.

Sebon said the new criteria would bring transparency and uniformity in determining FPO price. It said a company should apply to Sebon for FPO within four months after the annual general meeting’s decision. While determining the price under each standard, the company should also state the basis for the price determination. The stock regulator said the company should state how the average price was maintained and how the industry risk was calculated.