SEBON to revise book building regulations amidst pricing controversies

KATHMANDU: In response to ongoing controversies over the pricing of companies issuing primary shares through the book-building method, the Securities Board of Nepal (SEBON) has announced plans to revise the regulations and guidelines related to this method. The decision, detailed in the board’s policy and program for the current fiscal year, aims to further systematize public issuance processes.

Book building is an alternative method of pricing during public issuance, where the underwriter or book runner determines the price based on investor demand. This method has recently come under scrutiny, with questions raised about the fairness and accuracy of the pricing of shares of companies that have received approval and issued shares through this method.

For instance, last Asar (June-July), the Securities Board halted the IPO issuance of Reliance Spinning. The decision came after significant controversy surrounding the process, interest from parliamentary committees, and numerous complaints from investors. The board directed the process to be halted until further notice, citing the need to protect general investors from potential unfair pricing.

The company had initially prepared to issue shares to Nepalis employed abroad starting from Asar 27. A source from the board stated, “We directed to halt the decision until further notice last Asar. We issued the directive to halt the share sale for the benefit of general investors after receiving many complaints.”

The Public Accounts Committee of Parliament also sent a letter expressing interest in the matter, questioning the basis of the company’s pricing and the authority and process of setting the base price for companies using the book-building method.

In the current scenario, allowing the IPO at the set price might deceive general investors, the committee noted, instructing the Securities Board to present detailed information on the matter. The board has already responded. Reliance Spinning Mills had set the per share price at NPR 820.80 through the book-building process, prompting the committee to demand an explanation from the Securities Board.

Additionally, the board’s policy and program include implementing the directives of the Accounts Committee to systematize the regulation of the securities market. “To maintain uniformity in net worth and premium pricing in public issuance of securities, we will prepare excellent guidelines considering the directives of the Accounts Committee and international practices, and we will study and revise the current lock-in period arrangements for founders’ shares of listed organized institutions,” the policy and program stated.

Following the government’s budget statement, the board also plans to create the necessary legal and institutional arrangements to operate a commodities exchange market. “We will draft the necessary regulations regarding commodities trading, clearing, and settlement businesses, as well as warehousing,” the board stated, “and issue licenses for the commodities exchange market.”

The board has also indicated the need to update the prevailing laws regarding the securities and commodities exchange markets to align with international principles and standards, and to draft separate acts for the Securities Board and the securities market.

The board is preparing to coordinate with the government to draft the laws related to the Nepal Securities and Exchange Commission and the securities market. “We will amend the regulations and guidelines under the Securities Act, 2006, and the Commodities Exchange Market Act, 2017,” the policy and program stated, “and review the supervision manual to ensure effective oversight of the securities market and practitioners.”

Moreover, the board’s program includes formulating policies regarding the size, capacity, and duration of schemes that can be operated by mutual fund plan managers, based on the Securities Act, regulations, and prevalent international practices. The process of amending the securities-related laws to open investment in the secondary market to non-resident Nepalis will also be advanced. The board also indicated plans to facilitate the issuance and trading of green bonds, energy bonds, and other innovative financial instruments through necessary legal arrangements.

Due to the controversies, the government has not been able to appoint a chairman for the Securities Board. The chairman’s position has been vacant since Poush 20 (December-January). Since then, except for a few exceptions, the board has been unable to issue new licenses, approve share issuances, or perform other related tasks.