IPO market heating up as cos cash in on exuberant investor sentiment

KATHMANDU, July 29:

In what indicates attempts of public companies to cash in on investors growing craze toward initial public offering (IPO) in recent years, floating of securities in Fiscal Year 2014/15 jumped by three times to Rs 9.93 billion compared to data of 2013/14.

According to data of Securities Board of Nepal (Sebon), a total of 28 companies acquired permission from the capital market regulator to float their primary shares or debentures worth of Rs 6.66 billion in last fiscal year, up from Rs 3.02 billion of IPOs and debentures of 20 companies in 2013/14.

According to Securities Act, companies interested to issues securities have to register with Sebon all their securities before issuance. These companies have to prepare prospectus, and publish it for the public after getting Sebon's nod.

The frequency of public issues is growing as public companies try to generate fund from the public amid growing interest of investors toward stock market. While some companies, particularly bank and financial institutions (BFIs) and insurance companies, are required to allocate certain percent of their shares to public, others like hydropower companies, who are struggling for financial closure, and businesses that are looking for expansion, have found public issue an opportunity to mobilize funds from the public.

The companies embracing easy route for floating shares to arrange capital have gone up significantly in recent years and secondary market is turning bullish.

Ten years ago, only 15 companies had issued ordinary shares and debentures to collect Rs 915 million, according to Sebon.

Primary shares and debentures of 30 public companies worth Rs 6.63 billion was floated in 2012/13 when Civil Bank Ltd, Mega Bank Ltd and Agricultural Development Bank Ltd launched their IPOs. IPOs of all the companies were oversubscribed by multiple times which showed the public's attraction toward primary issues.

Capital market analysts say that the companies have tried to cash in on exuberant investors' sentiment and ever-expanding secondary market.

"Most of the companies are floating securities to collect funds for their business expansion and to support their working capital requirements. The secondary market is growing; the benchmark index is rising, while the share price of listed companies is also increasing. This has encouraged public companies to float their shares so that they will have no problem in collecting fund," Narendra Sijapati, former president of Stock Brokers Association of Nepal (SBAN), told Republica. "The craze of general investors toward capital and secondary market has become an opportune moment for even those companies whose shares otherwise would have been under-subscribed."

According to stock analysts, investors' interest toward IPO is largely guided by primary shares of most of the public companies that come under face value of Rs 100 which eventually get traded in Nepal Stock Exchange (Nepse) -- the secondary market -- on far higher value than the purchased value.

Meanwhile, 14 companies are awaiting approvals of Sebon to issue their primary shares worth Rs 3.07 billion, according to Sebon officials.

Source: Republica