90% of Shivam's shares to be tradable from 2022; Current short supply leading to higher prices

About the company

Shivam cements was founded in the year 2003. It began commercial production from the year 2011 and is the largest manufacturing Greenfield project in Nepal. It is currently producing 3000 TPD cement and 1900 TPD (Tones per Day) clinker from the company’s self-owned limestone quarries. With a broad vision of business, Shivam Cement Private Limited was converted into Public Limited Company in the year 2015 to provide its customers and the stakeholders to be a part of the company.

Shivam Cement Limited also holds 88% shares in Shivam Holding Private Limited which in turn holds 30% stake in Hongshi Shivam Cement Pvt. Ltd. (HSCPL), a JV with Hongshi Group of China which has set up a cement plant with grinding capacity and clinker capacity of 6000 TPD, whose commercial production has started from Jestha 2, 2075.

The authorized capital of the company is Rs.7 arba while the issued capital is Rs.4.4 arba .

Though Shivam Cement falls under the Manufacturing and Production index, it is the first cement producing firm to be listed on the stock market. Due to the absence of any direct competitor in the stock market, the company is likely to make most of first mover’s advantage and attract a considerable cluster of both individual and institutional investors.

Overview of entry into capital market

Shivam Cement had issued Initial public offering (IPO) for project affected locals and general public at a premium price. The company had issued 10% for general public and 2% for locals. However, since the issue was floated at a premium price, it got undersubscribed and took multiple phases to be fully subscribed.

The company had issued 10% of the issued capital i.e. 44 lakh unit shares to the general public at Rs 300 per unit (Rs 200 premium added on Rs 100 face value per share). Out of the total issuance, 2,20,000 units had been separated for the Employees of associated organizations and another 2,20,000 units for the different Mutual Funds scheme.

However, only 60,000 shares have been allotted by the mutual funds. So the remaining (44 lakh units – 60 thousand units allotted to different mutual fund schemes + 94695 units undersubscribed by project affected people) 44,34,695 lakh units was issued for the general public and employees at Rs 300 per unit.

Therefore, as you can see in the table, 4.4 crore unit shares of SHIVM are listed in NEPSE, out of which 44.94 lakh units ordinary shares are only tradable. The remaining 3.87 crore units promoter shares and 7.85 lakh units shares of project affected locals are not tradable.

Presiding regulation

According to the Securities Registration and Issue Regulation, 2073 companies that do not fall under the purview of specific regulatory body such as Nepal Rastra Bank (NRB) and Beema Samiti, are required to fulfil certain conditions for securities issuance, registration and trading.

Therefore, pursuant to that regulation, Shivam could float upto 10% of their issued capital for the project affected locals. The shares, thereby, allotted to the locals are locked in for a period of 3 years starting from the date of allotment. Thus the ownership of shares can't be change except in case of death of the shareholder, in which case the share will be transferred to his/her next of kin.

Similarly, the shares held by promoter shareholders and any bonus or right shares given to those shares are also subject to lock-in period of 3 years from the date of allotment of the Initial Public Offering (IPO).

Summing up

A few days ago we did a story on the surprising rise of SHIVM's share price in the market, despite the fact that its IPO had been quite unpopular due to premium pricing. In that article, we discussed the reasons that might have pushed the price of SHIVM , and one prominent reason for it was high demand and low supply creating a disequilibrium.

As we discussed above, out of the 4.4 crore units of SHIVM listed, only 44.94 lakh units are only tradable and the remaining shares are under the regulatory lock-in period. The allotment of shares had been conducted on March 06, 2019 which means that the promoter and project affected local's shares will be tradable from March 06, 2022.

Until then, the scarce supply of shares is likely to push the price rather than the fundamental growth. If the company posts better growth results per quarter or attractive bonus or right shares, then the rise in price will likely be higher than what is organic.