Nepal’s Securities Board (SEBON) is set to implement stricter regulations for Initial Public Offerings (IPOs), aiming to prevent misuse and protect investors. The new rules will allow only companies whose last fiscal year’s operating revenue exceeds their paid-up capital to issue IPOs. This move is expected to end the growing practice of pre-IPO founder share sales and other exploitative practices.
According to SEBON sources, the amendment to the IPO issuance directive will target financially weak companies that have previously been able to raise capital through IPOs, despite low revenue. By enforcing the requirement that a company’s operating income must surpass its paid-up capital, the board aims to ensure that only viable companies can access public investment.
In recent years, some companies have exploited the pre-IPO system by selling founder shares at a premium before the IPO. Investors, attracted by promises of high returns once the IPO hits the secondary market, often rushed to purchase these shares. SEBON has identified such practices as a major reason for slowing activity in the secondary market.
The new regulation also mandates that at least 20% of a company’s issued capital—or a minimum of NPR 25 crore at an NPR 100 nominal rate must be offered through the IPO. This threshold is designed to make the IPO process more organized and transparent, ensuring that public participation remains significant.
A SEBON official stated, “By requiring companies to meet revenue criteria and mandating a minimum share allocation in IPOs, we can stop exploitative practices like pre-IPO founder share sales. While we cannot control off-market founder share transactions that occur before IPO applications, our stricter IPO process will minimize these irregularities.”
The move is widely expected to restore investor confidence in Nepal’s capital market and ensure that IPOs serve their intended purpose of raising capital for genuinely viable companies.
