Liberalisation of IPO pricing: Regulator to allow firms going public to price sharesVery soon, companies going public will be allowed to add premium to the shares they plan to offer to the common people, as the securities market regulator has initiated the process of liberalising initial public offering (IPO) pricing.
Very soon, companies going public will be allowed to add premium to the shares they plan to offer to the common people, as the securities market regulator has initiated the process of liberalising initial public offering (IPO) pricing.
The Securities Board of Nepal (Sebon) is soon coming up with a directive in this regard, largely to attract real sector companies to the stock market-although talks on this issue have been held multiple times in the past.
At present, companies from the financial sector, such as banks, financial institutions and insurance companies, dominate the stock market because their regulators have made it mandatory for them to go public after certain years of commencing operation.
Since no such rule has been introduced in other sectors, many firms, especially of the real sector, such as manufacturing, are not listed on the stock market.
However, it is not that real sector firms do not want to issue shares to the public. But, in spite of the interest, many have put their plans on hold because the stock market regulator does not allow every company to add premium to the shares being floated through the IPO.
In other words, the Sebon generally does not allow companies to float shares in the primary market at price of above Rs100 each.
Currently, only companies with high net worth are allowed to add premium to their shares.
So far, only two companies-Nepal Telecom and Chilime Hydroelectricity-have added premium to the shares at the time of the launch of their IPOs. Nepal Telecom was allowed to add a premium of Rs500 to each of its share, while Chilime was allowed to add a premium of Rs300 to each of its share.
Once Sebon enforces the new rule, all companies going public can add premium to the stocks being floated in the primary market. In other words, shares floated through the IPO may cost more than Rs100 each soon.
The new Securities Registration and Issue Regulation introduced by the Sebon last month already includes a provision in this regard.
“We will soon come up with a directive, which will fix the ceiling on premium that could be added to shares being offered through the primary market,” said Sebon Spokesperson Niraj Giri.
“This means companies can add premium to shares without considering their net worth. Instead, factors such as expected cash flow and company’s goodwill in the market will be taken into account while fixing the price of shares being offered through the primary market.”
The Sebon hopes the new provision would lure big profit making companies to the stock market, which have so far avoided floating shares in the primary market-albeit it is one of the key areas from where funds could be raised for further growth.
As of now, 231 companies, mostly institutions of the financial sector, have been listed in the Nepse.
The Companies Act-2006 has provisioned that companies can fix IPO’s price at Rs50 per share or the excess value which is a multiple of 10. Later, the Sebon had fixed IPO price at Rs100 per share.