Initial Public Offerings (IPO) Process in Nepal

 

Before making a public offering of securities, the issuing corporation must obtain approval from the annual general meeting (AGM) of shareholders. It must also certify the legitimacy of the financial disclosure of the corporation from the auditor.

The public offering of securities involves the following processes in Nepal:

Preliminary Decision

The firm itself makes some preliminary decisions concerning public issues of securities. These decisions involve the rupee amount of new capital to be raised and types of securities to be issued. The firm can issue shares of common stock, debentures, bonds, or some combinations of these securities. The issuing firm also should decide the way by which it deals with the investment bankers. The firm can offer a block to its securities for sale to the highest bidder, or it can negotiate a deal with an investment banker. These two procedures are called competitive bids and negotiated deals.

Selection of Issue Manager

An issue manager is a firm that manages the public issue of securities on behalf of an issuing company. According to Company Act 2006, issuing firm must use the services of the issue manager licensed by SEBON for the public offering of securities. Different investment banking firms are better suited as the issue manager for different companies. Size of issue, the riskiness of the securities, amount of commission, etc., are the major factors to be considered for the selection of a competitive issue manager. The issuer can select one or more issue managers based on these factors.

Preparation of Prospectus

The prospectus is a legal document that contains information about the issuer and the securities. It contains the information on major functioning of issuing firms including its capital, financial and operational status, a team of management, associated promoters and directors, and the firm's future prospects. For the public size of securities, the issuing firms must prepare the prospectus including all information prescribed by the securities act, 2007 and Company Act, 2006. The prospectus so prepared must be approved by SEBON. The prospectus is jointly prepared by the issuing firm and issue manager.

Filing the Registration Statement

After the preparation of the prospectus, the issuing firm should file a registration statement with SEBON for the registration and approval of the public issue. The issuer has to submit the prospectus and due diligence Certificate with the registration statement. A due diligence certificate is issued by the issue manager. It certifies that the issue manager has well-reviewed all the information and contents of the prospectus and they are satisfactory. Besides, the issuing firm should also attach its declaration about compliance with prevailing laws of the country applicable to it, its financial statements, details of promoters, executives, and non-executive directors, and other information about the firm's issues.

Review of Prospectus

After filing the registration statement with the prospectus and other documents, the Prospectus Vetting Committee of SEBON makes necessary reviews on the contents of the registration statement and verifies the prospectus and other documents. The prospectus vetting committee contains representative members from SEBON, Nepal Rastra Bank, Nepal stock Exchange, Insurance Board, and Office of company registrar. These members minutely review financial information and other tangible information of the issuing firm that is necessary for prospective investors.

Approval of Issue

Upon review of the registration statement, prospectus, and other documents, the SEBON asks for further clarification and update of the documents if they are not satisfactory. After the issuer resubmits the prospectus with required clarifications and updates, SEBON approves the public issue and the prospectus for the publication

Issue Open

The issuer should open the issue within two months from the approval of the prospectus. The public issue should be announced at least 7 days before the issue open date.  It must contain all major information incorporated in the prospectus. The issue should be open for a minimum of 4 days to a maximum of 15 days.

Allotment and Refunding

Depending upon the number of applications, the public issue should be allotted within 40 days to a maximum of 70 days from the date of issue close. After the allotment has been done, the refunding should be started within 5 days of allotment. According to Securities Registration and Issue Regulation, 2009, the refunding should be made in the bank account of the applicants as mentioned by them in the application.