Sebon to allow premium offerings

KATHMANDU:

To attract more diverse companies in the capital market, the regulator is ready to allow companies to float shares at a premium price.

The proposed amendment of Securities Registration and Issue Regulations 2008 prepared by the Securities Board of Nepal has allowed companies to issue shares at a premium rate of up to two and a half times the company’s net worth.

When approved, the amended regulation will allow companies aspiring to get listed at the stock exchange to fetch the best price for a unit share even during an Initial Public Offering (IPO). At present, most companies are offering shares at a face value of Rs 100 to the public during IPOs due to the difficult requirement of book building.

According to the existing regulation, though a company can issue securities at a premium while making a public issue it has to have distributed dividends in the last three years. The price could not be more than the net worth per share.

However, companies still need to carry out due diligence audit about the methodology, rationale and justification of fixation of premium.

Sebon has decided to amend the regulation to attract more real sector companies to issue shares voluntarily. The difficulty in the book building process was considered one of the biggest hindrances for companies to enter the capital market. Book building allows the issuer to scout for potential buyers and form a price band for the IPO.

It also means the days of investors buying shares at a face value during the IPO might soon be over.

“It will be in the interest of share investors as well if more diverse and strong companies enter the stock market rather than it being concentrated with financial institutions,” said president of Nepal Investors’ Forum Raj Kumar Timilsina. “If the company is credible then investors are willing to pay a premium value as well,” he said citing examples of earlier offerings that had floated shares with added premium.

So far only four companies listed at Nepal Stock Exchange have issued shares at a premium. Less than six months ago Rural Microfinance Development Center had issued shares at a premium. It had offered shares at Rs 180 including a premium of Rs 80 over face value of Rs 100. Two hydropower companies — Arun Valley Hydropower and Chilime Hydropower — had also issued shares at a premium for the public. In June 2009, Arun Valley had issued shares at Rs 184 per unit for public including a premium of Rs 84.

Chilime had offered shares at Rs 323.70 for the locals of project districts that are not directly affected by the project. Likewise, during its IPO for the public, Chilime had offered shares at Rs 408.36 per unit. The government also sold shares of Nepal Telecom to the public at Rs 600 per unit with an added premium of Rs 500.

Source: THT