SEBON's new guideline regarding IPO rating prohibits 4 hydro company from issuing IPO and 4 companies still under scrutiny

The Initial Public Offering (IPO) is the gateway for the investors to enter into the secondary and in some cases, some people just stick to IPO to construct their portfolio. For so long the IPO of any company irrespective of their fundamentals and the ratings have been over-subscribed.

When asked why you are applying for this IPO despite such poor rating, they would answer, "The rating doesn't matter. Once the IPO gets listed in NEPSE it's surely going to be twice or more." However, that has changed to some extent now as some companies' prices have gone below the par.

In response to the same, Securities Board of Nepal (SEBON) has issued a guideline whereby companies with poor IPO rating i.e. a rating of Grade 5 won't be allowed to issue IPO unless they improve their rating.

This guideline doesn't affect the issues that have been already approved by SEBON, but only the ones that are in the pipeline waiting for approval.

Under the SEBON's IPO pipeline there are currently 13 Hydropower companies with Eastern Hydropower Company which is preparing to apply.

One thing to note under the Hydropower sector is that they issue IPO in different phases. So before issuing to the General Public, they need to issue 10% shares to the Project-affected Locals. This, on one hand, acknowledges the locals and on the other hand, builds trust among the general public that since locals have invested the project must be good enough.

Therefore, the companies which are in pipeline for the General Public won't be affected by the new guideline. They can issue IPO even if their Rating is Grade 5. However, as per the SEBON guidelines for the companies which are in pipeline for the Locals, those with Rating of Grade 5 won't be able to issue IPO. They will need to improve their fundamentals and the rating to be eligible to issue IPO.

From the table above, we can see that the first 7 companies won't be affected as they are going to issue for the General Public. Similarly, from the remaining 7 companies, RuRu Jalabudhyut Company won't be affected as it has ICRA Rating of Grade 4+. Similarly, Bhairab Kunda HP, Sayapatri HP, Unique Hydel Company and Eastern HP won't be able to issue IPO as they have a poor rating.

The remaining companies, Garjang Upatyaka HP, Laughing Buddha Power Company, CEDB Hydro Fund, and Himal Dolakha Hydropower are yet to do their rating. Once they do their IPO rating, they'll be able to issue IPO only if there rating is not poor i.e. Grade 4 or less.