KATHMANDU: Small and Medium Enterprises (SMEs) can now issue shares to raise capital. This development follows the Securities Board of Nepal (SEBON) issuing regulations for the issuance and trading of securities for SMEs, enabling these companies to raise capital through Initial Public Offerings (IPOs).
SEBON released the regulations on Thursday, which were approved by the Cabinet on December 24. To implement the regulations, SEBON has already communicated with the Nepal Stock Exchange (NEPSE) and CDS and Clearing Limited.
According to the regulations, SME shares will be traded on NEPSE. While the initial draft of the regulations proposed a separate SME platform, the finalized version will add a subgroup within NEPSE for trading SME shares.
“A separate platform for SMEs was removed after multiple rounds of discussions,” a source stated. “Now, NEPSE will need to create a subgroup for SME share trading as per the regulations.”
For SMEs wishing to trade their shares, the maximum paid-up capital has been set at NPR 250 million. However, this limit can be adjusted based on market and company conditions, subject to approval from the Ministry of Finance. Initially, SEBON had proposed obtaining approval directly from the board.
SMEs can issue IPOs ranging from a minimum of 30% to a maximum of 49% of their issued capital. The regulations also allow SMEs to issue IPOs without a credit rating, although SEBON retains the authority to mandate credit ratings if it deems necessary.
Investors in SME IPOs must apply for a minimum of 500 shares, double the earlier proposal of 250 shares per application in the draft.
Before offering IPOs to the public, 5% of the shares must be purchased by merchant bankers and 15% by institutional investors. These entities will face a three-year lock-in period on their shares.
SEBON had finalized the draft regulations in April 2023 and sent them to the Ministry of Finance for approval. The Cabinet approved the regulations in December, and SEBON believes this move will encourage small-cap companies to grow their businesses.
SMEs are also permitted to issue IPOs at a premium price. To qualify, companies must have been profitable for the past three consecutive years and maintain a per-share net worth exceeding their paid-up capital.
The regulations state that companies issuing IPOs at a premium can set the price up to twice the per-share net worth. Currently, 268 companies are listed and trading on NEPSE.
NEPSE spokesperson Murahari Parajuli confirmed that NEPSE would facilitate SME share trading once SEBON grants IPO approval.
“NEPSE is responsible for facilitating the trading of SME shares,” Parajuli said. “The board will make the necessary decisions in this regard.”