Securities Board to bring in rights issue policy

The Securities Board of Nepal (SEBON), the country money market regulator, is soon planning to bring a new directive related to the issuance of rights issue that will allow public companies to issue rights only once in a fiscal year besides imposing other conditions.

An official of the board informed the Post that the main purpose of the proposed rule was to curb the long-running practice of manipulating the share market by issuing rights multiple times in a fiscal year. Though the existing guideline permits public companies to issue rights only once in a fiscal year, it has been relaxed in recent years to allow financial institutions to raise their capital as per the directions issued by Nepal Rastra Bank (NRB).

"We are thinking of tightening its implementation as ‘uncontrolled' issuance of rights has brought much distortion in the financial market in recent years," said the official. As per the directives of the central bank, commercial banks are required to raise their paid-up capital to Rs 2 billion by mid-July 2010.

SEBON chairman Dr Chiranjibi Nepal confirmed that the board had initiated homework to bring such a policy, and said that its main objective was to protect the interest of genuine investors by discouraging speculators.

According to the officials engaged in preparing the framework of the guidelines, public companies planning to issue rights shares will have to present a convincing and justifiable capital plan to ensure that the people's investments are secure.

The board has held a number of meetings in this connection with high-ranking officials of the central bank, and we have been assured that NRB would be extending all necessary cooperation, said an official.
Source: eKantipur