Sebon mulls free price system for companies IPO
KATHMANDU, MAY 30 -
Security Board of Nepal (Sebon) has initiated a feasibility study on allowing companies to go into free pricing system for their initial public offering ( IPO ). The system, according to the regulatory body, permits the companies to fix the price of their IPO on their own.
Sebon said the provision could help attract more companies to get registered in the Nepal Stock Exchange (Nepse) as it could increase the real value of the company. “It can rope in a large number of companies that have been reluctant to go public,” Sebon director Niraj Giri said.
Currently, the companies can issue their IPO s at a constant par value of Rs 100 per share. Only those companies recording profit in three consecutive years can issue their IPO at the premium price.
“Citing the low price of their shares, big profit making companies, mainly from real sector, are seen reluctant to enter capital market,” said Giri.
If the provision is implemented, the companies can fix their IPO ’s price, other than the Rs 100 per share which is currently in effect. The regulator has also been considering other alternatives like Book Building and Dutch Auction along with free pricing as alternatives to replacing the fixed pricing system.
In Book Building, the issue manager fixes the share prices of a particular company with consent from institutional investors like mutual fund. Under the system, the final price is set on the basis of minimum and maximum prices as prescribed by the institutional investors. According to stock traders, the southern neighbour, India, has also been practicing the Book Building system for stock trading.
Dutch Auction considers quantity and the prices that the investors have desired to pay for a particular company’s IPO . In the system, the investors fix the quantity and maximum share prices at which they want to purchase the stock.
In Free Pricing System, the IPO ’s quantity and the price are fixed by the companies themselves on the basis of their financial status.
The Company Act-2006 has provisioned that the companies can fix the IPO ’s price at Rs 50 per share or the excess value which is a multiple of 10. The Securities Registration and Issue Regulations 2008 has maintained the IPO price at a constant Rs 100 per share.
President of Merchant Bankers’ Association Bhisma Raj Chalise said free pricing, if implemented, could reduce the practice of a single investor applying for IPO in the name of many friends and relatives. “However, it will not enclose a large number of investors due to high price of the stock.”
Stock analyst Rabindra Bhattarai hailed the provision of free pricing, saying that it could help boost the capital market. He, however, stressed on the need for a ‘big study’ before bringing the provision into effect. “We have limited number of institutional investors. In this regard, there is a possibility of cartel in the market if there is no competition among the big investors,” he said.
Stock traders also reacted positively to the Sebon proposal. Past president of Nepal Stock Brokers’ Association Anjan Raj Poudel said the free pricing of IPO is being practiced in many foreign countries. He said it could bring a large number of companies under Nepse as their real assets could increase significantly through huge amounts of subscription while issuing their IPO s.
As of now, 229 companies have been listed in the Nepse. Most of them are banks and financial institutions, while there is very negligible participation of the real sector companies.
Source: The Kathmandu Post
