Sebon brings new provision to offload promoter shares

KATHMANDU, APR 20:

The capital market regulator has allowed conversion of promoter shares to ordinary shares through secondary market trading. However, not removing the option of selling those shares by issuing offer documents has irked brokers.

Securities Board of Nepal (Sebon) has introduced a provision that will allow promoters to sell their shares to the public directly through brokers in the stock exchange without issuing an offer document. Earlier, the capital market regulator allowed conversion of promoter shares to ordinary shares through merchant bankers that prepare a detailed offer document and offer to sell the portion of shares in their possession at the quoted price.

“Sebon has removed the obligation of offloading promoter shares through a lengthy process of issuing offer documents, as from now on these shares can be traded at the stock exchange,” said chairman of Sebon Baburam Shrestha.

“The conversion of shares through the previous process is still valid if promoter share holders want to issue offer documents and quote their sell price,” added Shrestha, pointing out that transaction can be held in one process unlike the earlier one that required a merchant banker to sell through an offer document and then transfer the share through stock exchange.

After Nepal Rastra Bank (NRB) allowed financial

institutions to bring down the promoters’ equity to 51 per cent from the existing provision of 70 per cent, promoters seeking to offload shares to bring down promoters’ ownership by 19 per cent had faced difficulties.

NRB allows promoters to offload their shares and turn them into ordinary shares after the lock-in period of five years is over and if the annual general meetings of the respective financial institutions endorse the decision to increase public equity in the institution.

According to Sebon’s Security Registration and Issue Regulation 2064, promoter shares are supposed to be converted to public shares through the process of offer documents like during an initial public offering.

However, the provision was not feasible for promoters who wanted to sell a small amount of shares at their own terms because the process was rather expensive. Moreover, brokers had also strongly objected to the decision for it bypassed brokers in the transaction process.

“Any share transaction of a listed company that does not include brokers is against market practice,” said president of Stock Brokers’ Association of Nepal Narendra Raj Sijapati.

“Moreover, direct sale through merchant bankers would have created rigid pricing,” he said, adding that transaction through merchant bankers instead of brokers will also raise difficulty in calculating capital gain tax. “A dual system of converting promoter shares is ambiguous,” he said.

Source: THT