Companies authorized by Nepal Rastra Bank to issue non-redeemable preference shares have encountered delays in obtaining registration approval from the Securities Board of Nepal (SEBON). According to the central bank's directive, these shares must be registered with SEBON before issuance. However, SEBON officials indicate that legal uncertainties have arisen regarding the registration of these shares, as some companies plan to issue preference shares that will not convert into common shares.

Until now, preference shares issued by various companies were convertible into common shares after a certain period. A senior SEBON official noted that the new preference shares are structured to remain non-convertible, raising doubts about whether the existing legal framework permits their approval. "We will make a decision only after conducting a detailed study," the official added.

Nepal Rastra Bank has permitted Kamana Sewa Bikas Bank and Nabil Bank to issue non-redeemable preference shares. Kamana Sewa has been authorized to issue 3.5 million shares worth Rs 350 million, while Nabil Bank has received approval to issue 50 million shares worth Rs 5 billion.

The board of directors meeting of Kamana Sewa Bikas Bank on July 1, 2024 decided to issue non-redeemable, non-cumulative preference shares with a 9% dividend rate, applicable only in profitable years. The proposal was later approved during the bank's 18th annual general meeting on September 16, 2024. Kamana Sewa Bikas Bank plans to sell the shares either privately or through a public offering, subject to SEBON's approval. 

Similarly, Nabil Bank has set an 8% dividend rate for its preference shares, which will not be convertible into common shares. The bank will distribute dividends only in profitable years. Both banks can proceed with the issuance only after SEBON grants registration approval.

Kamana Sewa Bikas Bank's Chief Executive Officer, Dinesh Thakali, stated that although the bank has followed the regulatory process by applying for registration with SEBON as per Nepal Rastra Bank's directive, the approval has been delayed. He claims SEBON is delaying the process due to technical reasons and urges regulators to facilitate the listing of preference shares, which would help diversify the securities market.

Thakali further mentioned that about half a dozen other companies are also preparing to issue preference shares, making it crucial for SEBON to resolve the legal uncertainties swiftly. He emphasized that the registration of preference shares would provide investors with an alternative investment instrument. He expects regulators to acknowledge the positive market impact of preference shares and expedite the approval process.

Currently, Kamana Sewa Bikas Bank has a paid-up capital of Rs 3.51 billion, while Nabil Bank's paid-up capital stands at Rs 27.05 billion. Both banks have maintained a history of dividend distribution.

SEBON has acknowledged the legal uncertainty surrounding the issuance of non-convertible preference shares proposed by Kamana Sewa Bikas Bank and Nabil Bank.

Among commercial banks, Nabil has historically distributed the highest dividends. However, in the past two fiscal years, its dividend payouts have decreased. Nabil provided an 11% cash dividend in the fiscal year 2022/23 and a 10% cash dividend in 2023/24, compared to 30% in 2021/22.

Kamana Sewa also consistently distributed dividends until the fiscal year 2021/22, but in 2022/23, investors received no returns. In 2023/24, the bank distributed a total 12% dividend, including a 7% bonus share and a 5% cash dividend.

Among the shares issued by these companies, preference shares will hold priority in returns. Only after distributing dividends to preference shareholders will the remaining profits be allocated to common shareholders. Since the dividend rates for preference shares are fixed at issuance, they cannot be adjusted later. Regardless of fluctuations in common share dividends, Kamana Sewa must maintain a 9% dividend rate for its preference shares, while Nabil must maintain 8%, provided the company is profitable in the respective year.