A majority of hydropower companies applying for rights share issuance with the Securities Board of Nepal (SEBON) are currently operating at a profit. Among 19 companies that have applied to SEBON for approval to issue rights shares, 12 are hydropower companies. Of these, eight are profitable, while the remaining four are operating in losses.
According to Binay Dev Acharya, executive director of SEBON, there is no regulatory requirement mandating that companies must be profitable to issue rights shares. “However, the financial health of a company plays a significant role. Shareholders can exercise their discretion when purchasing rights shares,” he added. Acharya also noted that companies listed in the secondary securities market cannot pressure shareholders to buy rights shares.
Out of the 12 hydropower companies that have applied to issue rights shares, 10 are seeking to issue 100% rights shares, one is aiming for 65%, and another for 50%. Based on unaudited financial statements, Rapti Hydro and General Construction has reported a net loss of over Rs 1.2 million, Joshi Hydropower over Rs 4.8 million, Shivashree Hydropower over Rs 12.3 million, and Chhyangdi Hydropower over Rs 87.9 million.
Joshi Hydropower has applied to issue 65% rights shares, while the other three companies operating at a net loss are preparing to issue 100% rights shares.
Among the eight profitable hydropower companies, People’s Power is set to issue 50% rights shares. The remaining seven profitable companies seeking 100% rights shares include Terhathum Power, River Falls Power, Ngadi Group, Dordi Khola Hydropower, Barun Hydropower, Khanikhola Hydropower, and Barahi Hydropower.
In recent times, SEBON has allowed hydropower companies to issue rights shares to repay loans, leading to a surge in such issuances within the sector. Previously, the Electricity Regulation Commission permitted hydropower companies to issue rights shares only for new project development. However, the provision has now been extended to include loan repayment.
SEBON has mandated that hydropower companies must secure prior approval from the Electricity Regulation Commission before applying to issue rights shares. Additionally, companies must specify the reasons for issuing rights shares and obtain approval for the proposal during their general assembly. Once approved, the decision must be implemented, and an application must be submitted to SEBON within two months of the general assembly’s decision.
Companies are legally required to open rights shares for sale to the general shareholder group only after directors and principal shareholders have deposited the equivalent amount for their portion of rights shares.
Except in cases where regulatory bodies mandate capital increases, companies are allowed to issue rights shares only once per fiscal year. With declining investor interest in rights shares, hydropower companies issuing them to repay loans have not been positively received by investors.
Veteran investor Dambaru Ballav Ghimire emphasized that hydropower companies should adopt strategies to attract general investors when issuing rights shares. He also urged company founders to take responsibility to protect the investments of general shareholders.
Ghimire stated that only when hydropower companies gain significant investor attraction in the secondary market will there be greater interest in rights shares in the primary market.
In addition to the hydropower companies, three life insurance companies and four non-life insurance companies have also applied to SEBON to issue rights shares.
