NEPSE’s Revised Opening Price Range Draws Criticism; Investors Warn This Penalises Growth

Nepal Stock Exchange’s (NEPSE) newly revised opening price range for new listed securities has drawn criticism from investors and market participants. Some investors and traders termed the move unscientific and detrimental to market growth.  

NEPSE has recently introduced a new rule stipulating the opening price range for new listed securities will be at up to three times the face value of a share. However, if a company’s net worth per share remains below Rs 100, the opening range is determined at up to three times its net worth per share.

The new rule has replaced the previous practice of determining the opining price of a newly listed company’s shares at up to three times its net worth per share.

Stock market analyst Ramhari Nepal termed the new rule a form of regulatory negligence. “I do not know what is going on with the new rule. When it comes to Reliance Spinning Mills Limited (RSML), general people bought its share at Rs 820 per unit and qualified institutional investors at Rs 912 per share. It means the stock should hit the upper circuit for at least 10 consecutive days to reach a breakeven level. This is negligence on the part of regulatory bodies,” he said.

He observed that the newly revised rule penalizes the growth-oriented companies.

RSML may not be the only one company that has suffered from this new practice. He argued that having a net worth per share above Rs 100 does not automatically determine whether a company is fundamentally strong or weak.

“Instead, regulatory bodies should ensure proper auditing of financial statements to determine whether a company’s net worth per share is real, and thoroughly assess the financial performance before allowing IPO issuance,” he said.

Furthermore, he warned that measures taken in the name of resolving the issues surrounding RSML could worsen the situation further.

Some market participants however believe that NEPSE’s move aimed at discouraging the trend of newly listed companies’ share skyrocketing far beyond their actual financial performance.

Stock analyst Ajay Singh Thapa, popularly known as “Jay Sambho” said although NEPSE’s intention may be positive, the method adopted is flawed.  “NEPSE’s initiative to curb excessive price surge may be good. But, this new method is not good. It should seek alternative methods,” he suggested.

RSML has also expressed serious concerns about NEPSE's revised opening price range. It has termed the move a deviation from the long established market practices.

“Without any option left, the company was compelled to proceed with the listing under the NEPSE’s new rule. However, we request investors to trade its shares taking into account its actual financial performance rather than the NEPSE’s newly rule,” said the company in a statement.

NEPSE’s Information Officer, Murahari Parajuli responded that the revised rule follows a  decision originally taken in 2068 BS.

However, a member of NEPSE’s board of directors expressed reservations, stating that the 2068 decision was taken when IPO issuance at a premium or through the book building method was not commonplace. “So, new rule should be adopted to address companies offering IPO at a premium or through the book building method.”

He said the international practices generally allow shares to open at the issued price. “Investors have already agreed to buy shares at the issued price. So, the opening price range could reasonably begin from the issued price,” he said.