The Independent Power Producers’ Association of Nepal (IPPAN), which represents independent power producers, has objected to several provisions in draft rules prepared by the Securities Board of Nepal (SEBON) that would change the requirements for companies seeking to issue shares to the public.

IPPAN has called for the proposed provisions to be revised to reflect the nature of hydropower projects and their heavy capital requirements.

SEBON published the draft ‘General Eligibility Guidelines for Public Issuance, 2026’ for stakeholder feedback as part of the Capital Market Strengthening and Revitalisation Action Plan, 2026, issued by the Finance Ministry on September 14.

The proposed directive sets out general and financial eligibility requirements for companies seeking an initial public offering, as well as standards for corporate governance, the qualifications of founding shareholders, directors and management, disclosure and prospectus requirements, due diligence and professional liability.

It also covers the use and monitoring of proceeds from public offerings, post-issuance obligations, compliance and regulatory oversight, as well as offences, penalties and administrative action.

IPPAN says several provisions could affect the capital management of hydropower projects, the IPO process and the ability of developers to maintain investment in their projects. It has therefore called for some provisions to be removed and others amended.

The association submitted its recommendations to SEBON on Tuesday, saying the energy sector is closely tied to economic growth, industrialisation, job creation, government revenue and foreign-exchange earnings.

“Hydropower is a sector that requires large amounts of capital over a long period, so conditions that could disrupt investment should not be imposed,” IPPAN president Mohan Kumar Dangi said.

He said IPO rules should protect investors while also taking into account the nature of hydropower projects and their capital requirements.

“Hydropower requires a different regulatory approach from other sectors,” Dangi said. “Banking, insurance, hydropower, pharmaceuticals and manufacturing have different business models and capital structures, so it is not appropriate to apply a single set of standards to all companies.”

He has proposed a separate section and a separate IPO checklist for hydropower companies.

Operating requirement

The draft requires hydropower companies to have been in continuous operation before issuing ordinary shares. IPPAN has called for the provision to be removed, saying it does not reflect how hydropower projects are developed.

A hydropower company’s project is considered to be ‘operating’ only after construction is completed and electricity generation begins. If the requirement remains, projects under construction would not even be able to apply for an IPO, IPPAN said.

Hydropower projects require substantial capital during the construction phase, making it important to allow them to raise public investment while construction is underway, Dangi said.

IPPAN has proposed allowing hydropower companies to apply for IPO approval once a project reaches about 65 percent physical progress.

It has also called for a separate IPO checklist for hydropower companies that reflects the characteristics of the sector.

Dispute over net worth

IPPAN has also objected to the draft’s proposed net-worth requirement, under which a company’s net worth per share could not be lower than its face value.

It has called for removing the requirement for hydropower companies and other project-based businesses with similar capital structures.

“A company’s net worth can fall below Rs90 during the construction of a hydropower project because of depreciation,” Dangi said. “But the company’s income position changes once construction is completed and electricity generation begins. An IPO should not be blocked simply based on net worth during the construction period.”

Instead, IPPAN has proposed allowing companies to issue shares after giving investors adequate information about the risks through full disclosure, underwriting and credit ratings.

IPPAN claims that if the proposed net-worth requirement is retained, about 60 percent of hydropower projects could be unable to issue shares to the public.

The association has also proposed that SEBON consider the underlying value and power-generating capacity of hydropower projects when assessing net worth, and allow IPOs when a company’s net worth is as low as Rs90 per share.

Debt-equity rules

The draft would allow SEBON to set sector-specific requirements for debt-to-equity ratios, interest-payment capacity and other financial indicators.

IPPAN has called for the proposed debt-to-equity requirement to be removed altogether.

According to the association, the amount of debt a hydropower project takes on and the amount of equity it contributes are matters of project financing. Requiring SEBON to approve the debt-equity ratio again at the IPO stage would add another layer of regulatory approval after a project’s financing has already been arranged.

IPPAN argues that once a developer has signed a financing agreement with a bank, SEBON should not be able to halt the IPO process by reassessing the project’s debt-equity ratio.

Such a requirement could also make it difficult for developers to manage their long-term equity structures, the association said.

 ‘Fit and proper’ test

IPPAN has also objected to a proposal requiring SEBON to conduct a ‘fit and proper’ test on the founding shareholders, directors and chief executive officers of companies seeking a public offering.

The association says the test should apply only to directors and management, not founding shareholders.

“A hydropower project can have thousands of founding shareholders. Requiring every founding shareholder to undergo a fit-and-proper test and make a declaration may not be practically possible,” the association said. “The requirement should therefore be limited to directors and management.”

IPPAN also said it would be unfair to block an entire company’s IPO because one founding shareholder had been blacklisted or involved in financial crime, potentially affecting scores of other investors.

It has also asked SEBON to clarify who the provision applies to, particularly those removed from a blacklist who have not yet completed the required waiting period.

Calls for clearer grounds for rejection

The draft would allow SEBON to reject an IPO application if a company has concealed material facts, provided false or misleading information, failed to meet minimum eligibility requirements, shown serious weaknesses in corporate governance or taken actions that could adversely affect public investors.

IPPAN has called for clearer definitions of provisions referring to a company’s ‘financial condition being contrary to the interests of public investment’ and circumstances that could ‘adversely affect the interests of public investors’.

The association said the grounds for regulatory decisions should be clear and measurable rather than open to broad interpretation.

Existing IPO applicants

IPPAN has also asked SEBON not to apply the new rules to hydropower companies that had already submitted IPO applications before the new directive takes effect.

It has recommended that hydropower companies already in the IPO pipeline, meaning those that have filed applications under SEBON’s existing “General Eligibility Guidelines for Public Issuance”, continue to be assessed under the old rules.

The association has also called for an adequate transition period after the new directive comes into force so companies have time to comply with the revised requirements.