SEBON to Enforce Stricter Rules for Hydropower Companies: Strengthening Corporate Governance and Share Sale Protocols

The Securities Board of Nepal (SEBON) is planning to implement significant changes in the rules and regulations governing hydropower companies, particularly in the issuance of Initial Public Offerings (IPOs) and the issuance of right shares. These changes will involve amendments to the registration and expulsion regulations related to hydropower companies.

Hydropower companies have been known to issue shares to the general public to raise capital for their projects. However, concerns have arisen when these companies deviate from their intended goals and prioritize profit-making. In response, the SEBON is considering introducing provisions that would make the registration and expulsion of hydropower companies more structured and transparent.

In the proposed amendments to the regulations, SEBON aims to collaborate with representatives of hydropower producers, the Independent Power Producers' Association Nepal (IPPAN), to make the initial expulsion process more systematic and accountable. These changes would require the consent of energy producers as well.

IPO Issuance

Hydropower companies seeking IPOs will be required to provide a progress report indicating that at least 50% of their work, aligned with their objectives, has been completed. Additionally, they must furnish a certified statement from relevant banks regarding any loans they have taken for their projects. Final approval for the IPO will only be granted by the board once there is documented evidence of at least 65% completion of the physical infrastructure.

Hydropower companies will also need to commit to using the funds from the IPO for their ongoing projects or for repaying their loans to the bank. The provision to use IPO funds for expanding new projects or repaying loans will only apply if the internal rate of return (IRR) of the hydropower project exceeds 12%.

Right Shares Issuance

For hydropower companies listed on the Nepal Stock Exchange (NEPSE) that intend to invest in new projects and issue the right shares, the regulatory board will mandate that the company's net worth must not fall below the paid-up capital. However, it's important to note that this requirement will only apply to future proposals for the issuance of right shares by companies and will not affect those companies that have already submitted such proposals.

In cases where the company's net worth does not meet the requirement, the company will have to commit to raising the necessary funds through bank loans or other sources to cover the expenses of the new project or to repay the loans. Such practices will be subject to approval by the board.

Lock-In Period

Following the expiration of the lock-in period as per the hydropower company's regulations, shareholders who remain in the capacity of founders will have the option to sell their shares. However, this will be subject to a provision requiring the company to be actively engaged in commercial electricity production.

In accordance with this provision, once shareholders decide to sell their shares post the lock-in period, the company must have been actively involved in the production of electricity. The decision to permit such sales will be subject to approval from the company's board, which will include any necessary modifications to the company's articles of association and regulations.

Information regarding the lock-in period for shares held by foundational groups and other essential details will be communicated to the board and the securities market. Additionally, the relevant company will be required to publish this information on its website and in a nationally recognized daily newspaper at least 15 days before the commencement of share trading.

These changes are aimed at strengthening the corporate governance of listed hydropower companies and ensuring that the role of independent directors is more empowered and effective. The regulatory board expects listed companies to fully adhere to these regulations for the benefit of both investors and the hydropower sector as a whole.