Complaint filed in Finance Committee against Public Accounts Committee’s Directive to SEBON

A complaint has been lodged with the Parliament’s Finance Committee against the directive of the Public Accounts Committee of the House of Representatives, which instructed the Securities Board of Nepal to allow only companies with a per-share net worth of more than Rs 90 to issue an Initial Public Offering (IPO).

Santosh Chalise, chairperson of the Finance Committee under the House of Representatives of the Federal Parliament, informed that the complaint was filed with the Finance Committee against the directive issued by the Public Accounts Committee, stating that this directive has caused significant disappointment in the capital market and among investors.
The Public Accounts Committee had directed the Securities Board not to allow IPO issuance for companies with a per-share net worth of less than Rs 90.

Since the Securities Board of Nepal, the regulatory body of the securities market, falls under the jurisdiction of the Finance Committee, the committee is preparing to discuss the matter following the complaint, Chalise informed New Business Age.

"Now that the complaint has been received, we are looking at it with high priority," he said. "We will soon hold discussions on the matter and make the necessary decisions." Recently, many companies, particularly in the insurance sector, sold shares at premium prices. The Public Accounts Committee had previously expressed concern over the premium-priced shares of insurance companies.
On December 27 last year, the Public Accounts Committee directed the then-chairperson of the Securities Board of Nepal to investigate allegations that he had irresponsibly permitted the sale of shares at premium prices to various companies in an undesirable and non-transparent manner, influenced by financial dealings. The committee instructed the Securities Board to amend the rules and allow only companies with a per-share net worth of more than Rs 90 to issue IPOs.

"The Securities Board amended the rules, allowing companies to revalue their assets and increase their net worth to issue IPOs. As a result, even companies on the brink of liquidation have revalued their assets at will and started issuing IPOs," stated the directive of the Public Accounts Committee. "The Securities Board is instructed to follow the book-building process, where the share price is determined through competition, and to allow IPO issuance only for companies with a per-share net worth of more than Rs 90, without revaluation."

A member of the Public Accounts Committee informed New Business Age that this directive was issued to prevent companies in loss from revaluing their assets, raising prices, and selling shares, which could put general investors at high risk.
However, the complaint filed with the Finance Committee against this directive argues that preventing companies with a per-share net worth of less than Rs 90 from issuing IPOs would lead to capital flight, limit the ability of large investors to invest, and ultimately impact the national economy. Officials at the Securities Board have admitted that some companies currently applying for IPOs have a per-share net worth of less than Rs 90.

Mahesh Baral, Joint Secretary at the Ministry of Finance, who is also temporarily overseeing the Securities Board, said that following the Public Accounts Committee’s directive would create problems for many hydropower companies in the process of IPO approval.

"The majority of the companies applying for IPOs are in the hydropower sector, and among them, many have a per-share net worth of less than Rs 90," he said. However, the board has not clarified how many of the companies seeking IPO approval have a per-share net worth of less than Rs 90. According to the board, 35 companies have applied for IPO issuance so far, of which 17 are hydropower companies.
Ganesh Karki, President of the Independent Power Producers' Association, Nepal (IPPAN), stated that over 25 hydropower projects have been awaiting IPO issuance for 14 months with plans for construction. He argued that the IPO should not be stopped on the grounds of net worth, as the net worth of hydropower companies does not reflect the actual situation. "Hydropower companies are required to issue shares to project-affected locals," he said, "Halting IPOs based on net worth will affect the construction of the projects."