IPO: Initial Public Offering

What is an IPO?

Initial Public Offering from hereon referred to as IPO is a way for a company to go public and raise funds. Basically, an IPO is a process of offering shares of a private corporation or business to the public in a new stock issuance. Issuing stocks allows a company to raise capital from public investors. 

When a company goes public the business owners sell part-ownership in the business. Companies generally go public when they want to raise capital (equity) to fund future business growth. However, some companies may go public because a private owner/shareholder wants to sell their stake of the business, or because of regulators/government or just to enhance a company’s reputation. 

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IPOs are extremely popular with investors in Nepal because they’re very profitable. This is due to a few reasons. 

The value of shares in an IPOs in most other countries including the USA is determined by the valuation of the company, divided by the total number of shares at the listing. 

In a valuation, a few factors are considered: 

  • The valuation of comparable companies operating within the same or similar industries and providing a similar product or service
  • The financial track record of the company and it’s quality of management
  • The company’s growth prospects beyond the IPO, including what the IPO funds will be used for.

So, the par value can be widely different based on its valuation. Basically, shares can be valued at any amount depending on the valuation. 

Unlike, IPOs in most other countries, in Nepal, every new issue of an IPO is issued at a par value of Rs 100.  

Basically, every company that wants to go public in Nepal is initially valued at Rs 100 per share in Nepal’s stock market. What this often means is that great companies which should have been valued much higher also get valued at Rs 100. 

Then once the IPO shares are issued at face value to investors, and the shares are listed on Nepal’s stock exchange (NEPSE), the market determines its actual value which is often significantly higher than its par value. 

For example, Nepal Reinsurance Company which only recently issued its IPO is now trading at Rs 1549, netting investors a profit of Rs 1449 per share. I mean where else can you get profits like that. 

However, on the other side of this coin is the fact that these days you can hardly get any shares in an IPO. Over the last twelve IPOS, only one in five applicants got allotted the minimum 10 shares. Everyone else left empty-handed. 

How many IPO shares should you apply for? 

The number of IPO shares you should apply for depends on a few factors, namely:

  • Number of shares being issued
  • Number of applicants
  • Company offering the IPO

With a quick analysis of the recent trend IPO in Nepal, we can surmise a few things. 

IPO allotment trend in Nepal
IPO allotment trend in Nepal

Findings from the quick analysis:

  • You should always apply for a minimum of 10 units/shares. Only apply for additional shares if the number of shares being issued is more than the number of valid applicants. 
  • You should still do your research on the company before you buy shares in an IPO. For example, historically, shares of a few hydro companies when listed on NEPSE have fallen below the face value of 100, leading to losses for investors. 

In the case of Nepal Reinsurance’s IPO – this was the biggest IPO in Nepal’s history – of 16,000,000 units, there were only 390,638 applicants, that meant after the minimum of 10 units were given out to all applicants, additional shares could be given to those who applied for more. 

In this case:

  • 27,748 applicants who applied for 10 units received 10 units.
  • 15,590 applicants who applied for 20 units received 20 units.
  • 12,723 applicants who applied for 30 units received 30 units.
  • 20,929 applicants who applied for 40 units received 40 units.
  • Remaining 313,648 who applied for 40 units or more received 40 units, and 77,245 lucky applicants received 10 extra units through lottery.

How to apply for IPOs in Nepal?

IPOs have gone completely digital in Nepal. Now you can apply for and receive the shares (if you’re lucky) from your computer without leaving your house. 

You’ll be required to open a few accounts. Here’s everything you’ll need to apply for an IPO in Nepal online:

  • Bank Account.
  • Demat Account. 
  • CRN Number. This is a verification code that connects your bank account with Meroshare. You can get this from your bank after you open your Demat account.
  • Meroshare Account. 

Now that you’re ready to apply for IPOs, here are a few things you need to keep in mind.

  • Know the IPO open and close dates. 
  • Figure out how much you want to invest. 
  • Fill the application through your Meroshare account
  • Wait with anticipation for the allotment news.
  • Check whether or not you got lucky and received any shares. 

Alternatively, if you’re old school, you can also directly apply with C-ASBA approved banks and financial Institutions by submitting a physical form. 

Approved IPOs – 2078-79

There are three IPOs which have been already approved this financial year 2021-2022 (2078-79):

  1. Nyadi Hydropower Limited (For Local and Public) – Issued on October 2021
  2. Sahas Urja Limited (For Local and Public) – IPO Issued on August 2021
  3. Buddha Bhumi Nepal Hydro Power Co Ltd (For Local and Public) – TBD.

Upcoming IPOs in Nepal

There are 24 IPOs in the SEBON pipeline. 

Here’s the full list of IPOs under review by SEBON

Replied and Under Review by SEBON:

  1. Bindhyabasini Hydropower Development
    Co. Ltd. (For Local People & General Public)
  2. Himalayan Hydropower Limited (For Local & General Public)
  3. Balephi Hydropower Ltd. (For Local & General Public)
  4. Green Ventures Ltd. (For Local & Public) 
  5. NESDO Sambridha Laghubitta Bittiya Sanstha Limited
  6. Dordi Khola Jalbidhyut Co. Ltd. (For Local & Public)

Reviewed and Comment Sent by SEBON:

  1. Dish Media Network Limited
  2. IME Life Insurance Co Ltd.
  3. Upper Solu Hydro Electric Company (For Local & Public)
  4. Upper Hewakhola Hydropower Co. Ltd
  5. Jalpa Samudayik Laghubitta Bittiya Sanstha Ltd.
  6. Upakar Laghubitta Bittiya Sanstha Ltd
  7. Rastra Utthan Laghubitta Bittiya Sanstha
  8. River Falls Power Ltd  (For Local & Public)

IPOs Under Preliminary Review by SEBON:

  1. Sayapatri Hydropower Ltd. (For Local & Public)
  2. Emerging Nepal Limited
  3. Molung Hydropower Company Ltd.(For Local and Public)
  4. Reliable Life Insurance Ltd. For general public @ Rs.212 (along with
    premium Rs. 112)
  5. Three Star Hydropower Ltd. (For Local and General Public)
  6. Rapti Hydro and General Construction Limited (For Local and General Public)
  7. Cyc Nepal Laghubitta Bittiya Sanstha Ltd
  8. Adarsha Laghubitta Bittiya Sanstha Ltd
  9. Swetganga Hydropower and Construction Ltd. (For Local and General Public)
  10. Mandakini Hydropower Ltd. (For Local and General Public)

 

Can IPOs issue securities at a premium?

Technically, yes. The issuance of securities (Initial Public Offering) at a premium can be done. So, why don’t companies do it?

What are the rules and regulations for IPOs in Nepal?

When issuing an IPO, banks and financial institutions cannot offer shares at a price more than the par value. Similarly, a companies’ IPO price cannot be more than the per-share net worth, to comply with the prerequisites in the Company Act and Securities Registration And Issue Regulations, 2008,

The Securities Regulations state that “the face value of securities shall, generally, be Rs 100 per unit, if share, Rs 1000 per unit, if debenture, and Rs 10 per unit, if collective investment scheme.”

The Securities Regulations also state that: “A body corporate while making public issues may issue the securities at premium. In order to issue the securities at premium, the following condition shall be required to have fulfilled:

(a) Shall have to fulfill the conditions prescribed by the prevailing company
related law,
(b) Securities may be issued at premium while remaining within the limit of Net Worth per Share derived from latest audit,
(c) Outside expert or expert institution shall be required to have carried out due diligence audit about the methodology, rationale and justification of fixation of premium.”

Source: SEBON (Securities Exchange Board Of Nepal)

In Nepal’s context, since the pricing of an IPO has been set at not more than per share net worth value or face value, many securities are underpriced. This is a cost to the issuer and if such cost is high, there is no incentive for the issuer to go public. This has been one of the primary reasons why companies, which are not mandatorily required to go public are not too eager to do so.

FAQs: IPO

Is Demat account required for IPO?

Not necessarily.  You can still apply for IPO shares through an ASBA approved bank or financial institutions. You’ll be issued a physical share certificate. 

However, you cannot apply for IPO shares online without a Demat account. 

How to check the IPO allotment status?

You can check the IPO allotment status one of two ways.

1. You can log in to your Meroshare account and check the status of your application. 

2. Alternatively, you can check the results through websites like sharesansar.com by inputting your BOID No (Demat account number).  

When can IPO shares be sold?

You can sell your IPO shares once all the newly issued shares of the company are listed on the Nepal Stock Exchange (NEPSE).

Generally, the shares are listed on NEPSE within a couple of months after allotment. Please note that some take way longer than a few months. 

Do you think the IPO rules should be changed? Do you have any questions about the IPO process in Nepal?

Feel free to leave them in the comments, I’ll do my best to answer them.

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