The Securities Board of Nepal (Sebon) has planned to allow infrastructure companies to conduct a pre-initial public offering so that they can raise funds for their projects before construction starts.
Sebon director Niraj Giri said that a draft Securities Registration and Issue Regulation had been readied, and that it would be sent to Sebon’s board for its approval. After regulation is endorsed, companies will be able to raise money directly from the market to finance their construction projects.
“With the new provision, companies like Purbadhar Bikas Company, which is aiming to construct the Kathmandu-Hetauda Tunnel Road, will be able to raise funds before going for construction,” he added.
Sebon plans to set a minimum investment for the pre-IPO so that only wealthy people will apply. “The minimum investment might be Rs 500,000, for example,” said Giri. “The idea behind fixing a minimum level is that rich people will understand the status of the company more than others, and they can take greater risks.”
Moreover, there will be other disclosure measures that will help people to decide whether they should invest in the project through the pre-IPO. Although Sebon had originally planned to amend the existing regulation, it decided on creating a new one as issues like allowing international financial institutions to issue local currency bonds and registration of merged companies needed to be addressed.
According to Giri, the proposed regulation states that a merged entity will be registered as a third company. The merged company will have to pay a registration fee if its capital is enlarged to a level higher than the combined capital of the two original companies. The new regulation will also enable international institutions like the Asian Development Bank (ADB) and International Finance Corporation (IFC) to issue local currency bonds.
The current regulation does not have a provision regarding the issuance of local currency bonds by international institutions. Sebon was asked to amend the regulation after the government permitted the ADB and IFC to issue such bonds.
Last April, IFC, the private sector arm of the World Bank Group, received the go-ahead to issue bonds worth up to Rs 50 billion while the ADB was permitted to issue bonds worth the same amount in August. According to Giri, the new regulation allows the lenders to issue the bonds in instalments. “The government’s approval has been made mandatory for the registration of the bonds,” said Giri. International institutions issuing local currency bonds also need to publish the financial details of the bonds’ trading in the national media every quarter, according to Giri.
Published on KathmanduPost