The Securities Board of Nepal (SEBON) has formed a four-member study committee, led by Binaydev Acharya, head of the Board's Supervision Department, to address issues surrounding the initial public offering (IPO) of Reliance Spinning Mills.

This action follows a directive issued by the Finance Committee of the House of Representatives on January 17, 2024, to implement the Patan High Court’s decision regarding the IPO process. The court had initially issued an interim order on July 10, 2023, halting the IPO after hearing a writ petition filed on July 9, 2023, by four individuals, including Hari Bahadur KC. However, the interim order was lifted on July 29, 2023, allowing the IPO to proceed.

Subsequently, in its full verdict on November 6, 2023, the court directed Reliance Spinning Mills to publish a revised prospectus for the shares intended for public issuance. It emphasized SEBON’s responsibility as the autonomous regulatory body to ensure compliance and address discrepancies in the prospectus.

The company allotted 770,640 shares to qualified institutional investors at Rs 912 per share on January 29, 2024, constituting 40% of the shares reserved for public issuance. Following this, the company sought SEBON’s approval to issue 1,155,960 shares (60% of the total reserved for public sale) to the general public. Of this, 10% (115,596 shares) were allocated for Nepalis working abroad. However, the IPO issuance for Nepalis abroad, which began on July 11, 2024, sparked controversy as the shares were priced 10% lower, at Rs 820.80 per share, compared to the institutional investors’ purchase price.

Critics highlighted discrepancies in the financial details published in the two prospectuses. The public invitation letter issued on January 16, 2024, indicated an actual net worth per share of Rs 248.67 as of FY 2022/23. However, the revised invitation letter published on July 3, 2024, reported a net worth of Rs 242.5 per share, showing a difference of Rs 6.62. Additionally, the company’s earnings per share, initially reported as Rs 54.34 for FY 2079/80 (2022/23), fell drastically to Rs 2.8 after accounting for potential liabilities owed to the Nepal Electricity Authority.

Investors have raised concerns over these discrepancies, urging SEBON to intervene. The court had acknowledged the board’s position that pricing determined through the book-building method was legal but stressed that significant differences in prospectuses must be addressed with transparency and accountability.

Reliance Spinning Mills had appealed to SEBON, the Finance Committee, and the Public Accounts Committee prior to Tihar to expedite the IPO process, which had been stalled since July 2024. Institutional investors who purchased shares over a year ago have also urged authorities to resolve the matter, citing financial losses due to the prolonged delay.

A senior SEBON official stated that the newly formed study committee will prepare a report on how to proceed with the IPO in compliance with the court’s directives. The board has resumed its efforts to move the IPO forward cautiously, considering the complexities of the case and the risks associated with the book-building method.

The Finance Committee’s investigation, conducted by a three-member team comprising Ganga Karki, Metmani Chaudhary, and Rankumari Balampaki Magar, concluded that the IPO process should proceed legally. However, experts have criticized the Finance Committee for not fully addressing key aspects of the Patan High Court’s ruling, including the discrepancies in the prospectus.