SEBON Proposes To Categorize Companies with Rs. 25 Crores as SMEs. What Are The Conditions for IPO Issuance?

The Securities Board of Nepal has proposed to bring policies to give way and regulate the IPO issuance of Small and Medium-scale Enterprises (SMEs).

A Board of Directors meeting of SEBON held earlier on Jestha 04, approved the draft of regulations in Securities Issuance and Trading, 2080 relating to the organized SME sector. The approved draft had been sent to the Ministry of Finance for final approval on Sunday, Jestha 07.

The preliminary draft had been publicized on Chaitra 16, 2079 for suggestions and recommendations. The preliminary draft had mentioned for the provision to categorize companies with a paid-up capital of up to Rs. 25 crores as Small and Medium Scale Enterprises (SMEs).

The proposed draft had also mentioned that considering the presence of organized SMEs and condition of the market, the said limit for the paid-up capital could be revised.

Similarly, the draft had also proposed the regulation that the public issuing companies should issue securities in a manner that is not less than 30% and not more than 49% of the issued capital of the organization, unless the relevant regulatory body specifies otherwise. Similarly, the IPO issuing company should have completed one year of business operation.

However, it is mentioned in the draft proposed by the board that if a company registered as a private company has completed 2 financial years, then the company that has converted into a public company will be exempt from submitting details of one fiscal year of business.

Similarly, the compulsion of attaining a rating for such IPO issuing companies had been waived off in the draft. Although, it did mention if deemed necessary the Board may instruct to receive rating via Credit Rating Organization prior to IPO issuance.

Provisions for IPO Issuance

The subscribers of the IPO will have to apply for a minimum of 250 units of shares. However, an arrangement has been proposed without requiring an amount of more than 50% of the face value of the shares per share with the application. But according to the special law, if there is a provision to demand 100% of the amount, or if the organized organization in operation publishes its balance sheet of the previous three fiscal years and collects capital, the board can grant an amount of more than 50%.

Such companies can go for public issue at premium price as well. The conditions to do so include:

• The company has been operating in Net Profit for the past three consecutive years
• The Net Worth per Share has to be more than the paid-up capital per share of the organization
• The company has to receive at least average or more than average Credit Rating Grade
• The companies can charge up to twice the Net Worth of company for premium issuance as indicated in the previous financial record of the company.

For premium public issue, companies will have to appoint underwriter as well. Similarly, the Board amended the earlier provision of a one-year locking period limit for selling shares after the resignation from directors of such companies, following which shares could be sold after self-declaration and subject to the Board's approval.