Kathmandu: Securities Board of Nepal (SEBON) has initiated the preliminary process of revising its Securities Registration and Issue Regulations, in response to mounting concerns over distortions in the capital market, particularly surrounding hydropower companies and those operating under the Build–Own–Operate–Transfer (BOOT) model.
The move comes after persistent warnings from experts and a government-appointed commission that unresolved ambiguities over the status of BOOT model companies could pose systemic risks to Nepal’s financial sector.
Hydropower companies dominate Nepal’s stock exchange, with dozens of projects listed on the Nepal Stock Exchange (NEPSE). Many of these companies operate under the BOOT framework, where a project is built and run by a private company for a fixed period, usually 25 to 50 years, before being transferred to government ownership.
While this model has allowed the private sector to mobilize investment in power generation, it has created a structural problem for shareholders. Once a hydropower license expires and the project is transferred to the government, the company loses its only income-generating asset. This leaves shareholders holding paper shares in a company with no business, no revenue, and essentially no value.
“This uncertainty is a time bomb,” remarked a market analyst. “Investors are buying hydropower shares at high valuations without realizing that many of these companies have an expiry date. Without policy clarity, their capital could vanish overnight.”
The High-Level Economic Reform Recommendation Commission, chaired by former Finance Secretary Rameshwor Khanal, submitted a landmark report to the government in April 2025. The report specifically highlighted the risks posed by BOOT-based companies in the securities market.
“Most investors are unaware of the direct impact of the BOOT model on share value. If unaddressed, this could trigger a crisis more severe than the cooperative sector,” the report warned.
The commission pointed out that several hydropower companies with negative net worth are still being traded at inflated prices in the secondary market, fueling fears of a future collapse. It recommended that special provisions be introduced in securities regulations to safeguard investors.
One passage from the report reads: “Hydropower projects have a fixed production license of 50 years. After this period, when projects revert to government ownership, there is no clarity about the status of shares issued to locals and the general public. This ambiguity must be resolved urgently.”
BOOT companies are, by definition, temporary. Unlike public limited or joint-stock companies, which theoretically have perpetual lifespans, BOOT firms cease to exist once their project contracts expire.
For example, National Hydropower Company operates only the Indrawati Hydropower Project. When the project’s license ends and the asset transfers to government ownership, the company will have no remaining assets. Yet, its shares will still exist in NEPSE records. Investors holding those shares at the end of the concession will be left with ownership of a shell company — shares in name only, with no intrinsic value.
“This is a serious structural flaw,” said a senior SEBON official. “Such companies should never have been treated the same as perpetual public limited companies.”
Despite these risks, BOOT-based hydropower shares have been heavily traded in recent years. Many companies, even those failing to pay dividends or bonuses, continue to attract investors simply because they are listed.
One regulatory insider admitted: “SEBON allowed flexibility to encourage productive-sector companies to enter the stock market. But that flexibility has created distortions. Investors treat hydropower companies like any other stock, without understanding that these firms have a fixed life.”
The risk, experts caution, is that when project handovers begin in the coming decades, thousands of investors could lose billions in capital, sparking widespread financial instability.
Analysts propose two possible solutions to this looming crisis:
The first concerns with restricting the listing of BOOT companies. BOOT-model companies should not be allowed to list shares in the stock market like perpetual firms. This would prevent misleading investors into thinking they are buying into a company with indefinite business operations.
Second, convert BOOT Companies into mutual fund–style instruments. Another approach is to restructure BOOT companies into mutual-fund-like investment vehicles with a defined maturity. Just as mutual funds operate for a fixed period (5, 7, or 10 years) and return capital plus returns to investors at the end, BOOT firms could follow a similar structure.
“This would give investors clarity from the outset,” explained a market expert. “They would know that after 30 or 50 years, their investment will be liquidated, and they will receive their principal plus whatever earnings have accumulated. This eliminates the current ambiguity.”
Internationally, BOOT-model companies are rarely listed on stock exchanges in the same manner as perpetual public companies. Instead, they are treated as special-purpose vehicles (SPVs) with clearly defined lifespans.
In markets like India and Europe, investors in BOOT projects are often offered debt-like instruments or closed-end fund units rather than traditional equity shares. This ensures that when the concession ends, investor capital is properly settled.
Nepal, however, has not adapted these practices, leaving investors exposed to risks that regulators are only now beginning to acknowledge.
Following the commission’s warnings, the government adopted an Economic Reform Implementation Plan 2025 (Fiscal Year 2025), which included provisions to regulate hydropower IPOs more strictly. One of the key directives states that hydropower companies should only be allowed to issue IPOs after they begin commercial production, not during the construction phase.
The plan also directs the Ministry of Finance and the Ministry of Energy to resolve the ambiguity surrounding BOOT shares within two years.
SEBON, as the securities regulator, is under pressure to integrate these directives into its revised regulations. Sources within SEBON confirm that internal discussions are already underway to ensure hydropower IPOs and BOOT model provisions are clearly addressed in the forthcoming regulatory amendments.
Investors and stock market professionals are also pushing for urgent reforms. Former Stock Broker Association of Nepal (SBAN) president Bharat Ranabhat noted that most retail investors are unaware that hydropower projects revert to government ownership after a fixed period.
“They are buying and selling hydropower shares as if they are perpetual companies. This is dangerous. SEBON must first ensure that this information is clearly communicated to the public,” Ranabhat emphasized.
He added that similar issues exist with leasing-based housing companies, where ownership structures after the lease period ends remain unclear.
The challenges facing SEBON are substantial. On the one hand, Nepal needs to encourage investment in infrastructure, including hydropower, to meet its development needs. On the other, it must protect investors from structural flaws that could erode confidence in the securities market.
Experts argue that if SEBON fails to act decisively, the hydropower share problem could evolve into a full-scale financial crisis, mirroring or even surpassing the cooperative sector debacle.
“Regulators cannot afford to remain complacent,” one economist warned. “The longer this ambiguity persists, the more capital will flow into unsustainable shares, and the harder the eventual correction will be.”
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