New proposal for transparent IPOs

Financial regulators have proposed that the Securities Board of Nepal (SEBON) introduce a measure that compels investors to produce the original citizenship certificate to get share certificates during an initial public offering (IPO).

The regulators - the Nepal Rastra Bank (NRB), the Insurance Board, and the Company Registrar's Office - discussed over the proposal in a recent meeting at the central bank, a source who attended the discussion told the Post. Representatives of SEBON also participated in the meeting.

The aim of this proposal is to remove the existing loopholes that allow players to submit large numbers of share applications by using other people's names.

“In order to monitor whether the issue manager has implemented this measure or not, a team representing all these regulators will be present during the process of share allocation,” said the source.

Presently, SEBON has regulations that make it mandatory to produce the original citizenship certificate while applying for shares during the IPO. However, many investors have complained that the issue managers have not been abiding by the regulations due to lack of inspection.

Meanwhile, SEBON is preparing to make it mandatory for all prospective investors in an IPO to open a bank account to receive refunds of their money after the allotment of shares.

Presently, the issue manager makes refunds in cash. This has induced prospective investors to apply for shares in the names of hundreds of acquaintances using their citizenship certificates to increase their chances of getting a higher allocation of shares. A SEBON official says once the guidelines go into effect, such investors will not be able to make use of their usual tricks.

“The guidelines are awaiting endorsement by the Ministry of Finance before they can be enforced,” said the official.

The new regulations will also allow companies to issue shares at a premium price. As of now, they are required to make IPOs at face value, which is normally set at Rs 100 a unit. “We have allowed the companies to set the premium price as high as 2.5 times the book value,” said the official.

He said the guidelines would also require companies to publish a more detailed and informative prospectus to provide clear information to potential investors. “Apart from SEBON, they must also forward the prospectus to the stock exchange,” he added.
Source: eKantipur