SEBON moves forward with SME platform proposal to boost capital access for small and medium enterprises

Securities Board of Nepal (SEBON) has moved forward with the approval process for launching an SME Platform to facilitate the trading of shares for small and medium-sized enterprises (SMEs). After a year and a half of waiting, the Ministry of Finance has finally progressed SEBON’s proposal, taking the draft regulations to the Cabinet for approval.

SEBON had submitted the draft regulations concerning the issuance and trading of securities for small and medium organized enterprises to the Ministry of Finance 18 months ago. However, the ministry had held off on advancing it. Approval from the Cabinet is necessary for the implementation of these regulations.

“A draft of the regulations concerning the issuance and trading of securities for small and medium organized enterprises has reached the Cabinet from the ministry. The Cabinet is expected to approve it soon,” confirmed an Under Secretary from the Ministry of Finance.

Due to the delay in the Ministry, the SME Platform could not be launched. Once the Cabinet approves the draft regulations, it will pave the way for the SME Platform to operate.

SEBON introduced the concept of an SME Platform to facilitate separate share trading for small and medium-sized companies. The proposed regulations mention that trading of listed securities can be conducted either under the main system or on a separate trading system dedicated to SMEs. Currently, all companies’ shares are traded through a single index on the Nepal Stock Exchange (NEPSE). SEBON aims to establish a legal foundation to separate small and medium-sized companies from the NEPSE index.

Key Benefits of the SME Platform

Capital Access for SMEs: The launch of the SME Platform will open new opportunities for small and medium-sized enterprises to raise capital from the stock market. This is expected to boost these companies’ business prospects and encourage their growth.

Encouragement for Smaller Enterprises: SEBON Executive Director Dr. Navaraj Adhikari emphasized that the platform will provide a pathway for smaller companies to enter the market and access funding. He noted, “Nepal has a large number of small and medium-sized industries. This platform will support their growth by enabling them to raise capital.”

Flexible IPO Rules: Companies with up to NPR 250 million in paid-up capital will be eligible to register on the SME Platform. They can issue Initial Public Offerings (IPOs) ranging from a minimum of 30% to a maximum of 49% of their issued capital. The existing rules allow IPOs between 10% and 39%.

Eased Requirements for SMEs: Unlike the main market, IPO issuance for companies on the SME Platform will not require mandatory credit ratings. These companies will also be allowed to issue IPOs at premium prices, which is a significant incentive for smaller businesses.

Controlled Market Impact: SEBON believes that separating the trading of SMEs from large-cap companies will stabilize the stock market. The unpredictable fluctuations in the share prices of small companies, which often disrupt the overall market, will be minimized. “Currently, even a small change in the share price of a minor company affects the whole index. The SME Platform will prevent this, reducing the impact on the overall market composition,” Adhikari explained.

The regulations propose a five-year lock-in period for the founders of companies listed on the SME Platform. However, private equity firms, venture capitalists, hedge funds, and similar entities registered with SEBON or internationally will be allowed to sell shares one year after issuing an IPO.

NEPSE currently lists 270 companies, where both large corporations with billions in paid-up capital and smaller companies trade on the same platform. The launch of the SME Platform is expected to bring a new level of organization and stability to Nepal’s stock market, providing a tailored approach for SMEs while enhancing the overall efficiency of capital mobilization.