Kathmandu: Securities Board of Nepal (SEBON) is preparing to tighten regulations governing initial public offerings (IPOs) through amendments to its securities registration and issuance rules.
The proposed revisions aim to raise the minimum requirements for companies seeking to list on Nepal’s stock market.
Under existing provisions, the government has allowed companies from the real sector to enter the capital market by issuing 10 percent of their ordinary shares to qualify for listing.
Apart from banks and insurance companies — which are directly regulated by Nepal Rastra Bank and the Insurance Authority — firms in other sectors have been permitted to list by offering 10 percent of their issued capital through IPOs.
The current rules state that, unless specified otherwise by a sectoral regulator, an organized institution must issue not less than 10 percent and not more than 49 percent of its issued capital in an IPO.
According to draft amendments recently discussed in SEBON’s management committee, the minimum requirement for IPO issuance would rise from 10 percent to 20 percent of issued capital.
A SEBON source said the changes are intended to streamline IPO issuance and strengthen underwriting practices.
“A draft has been prepared that requires companies to issue either at least 20 percent of their issued capital or a minimum of Rs 250 million (approximately US$ 1.9 million) in an IPO,” the source explained.
If 20 percent of a company’s issued capital already meets the Rs 250 million threshold, that proportion will apply. However, if the 20 percent amount falls below Rs 250 million, the company would be required to issue shares equivalent to at least 25 percent of its capital to meet the minimum threshold.
The new requirements will not affect banks and insurers, whose IPO processes will continue under the rules set by their respective regulators.
SEBON is also considering introducing a minimum net worth requirement for IPO-eligible companies. The move follows criticism that companies with weak balance sheets are being allowed to issue shares. A parliamentary committee has recommended barring companies with a net worth below Rs 90 per share from launching IPOs.
“There is currently no legal basis for setting Rs 90 as the threshold, but the board is studying ways to ensure only companies with adequate net worth can be approved,” the source said.
The proposed amendments also seek to reform IPO allotment and underwriting. Discussions include requiring companies with lower net worth to distribute IPOs in larger minimum lots — 50 or 100 units instead of the current 10. This would mean investors would need to commit at least Rs 10,000 (about US$ 75) to apply, making it less attractive for speculative participation in weaker firms.
Board officials argue that this change would force both investors and underwriters to be more selective.
“Mandatory underwriting ensures unsold shares are purchased, but underwriters will now think carefully about which companies they back,” one official said. “This will naturally discourage financially weaker firms from rushing to list.”
SEBON is simultaneously reviewing multiple regulatory frameworks, including its ratings guidelines. Final decisions will be presented to the board and then forwarded to Ministry of Finance for approval before implementation.
Once enacted, the reforms would mark the most significant tightening of IPO rules in Nepal’s capital market in recent years. The changes are expected to raise the quality of listed firms, though they may slow the pace of new IPOs in the short term.
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