Prajita Bhduathoki

KATHMANDU, July 29: The Securities Board of Nepal (SEBON) has announced plans to extend the current lock-in period for founder shares of listed organizations. Currently, the lock-in period for founder shares is three years, during which these shares cannot be sold following the company's listing on the Nepal Stock Exchange. Despite this, founding shareholders have been pressurizing to shorten this period.

On Sunday, SEBON disclosed a revision of the lock-in period in its policies and programs related to the securities market for the fiscal year 2081/82 (2024/25).

SEBON spokesperson Dr. Navraj Adhikari explained that as soon as the lock-in period ends, the process for founder shareholders to exit the company accelerates, increasing the risk to general shareholders. Therefore, the lock-in period will be extended. Founder shareholders are viewed as the 'parents' of the company.

“They have extensive knowledge about the company's financial health, and we aim to extend the lock-in period to ensure they remain more responsible toward the company,” Dr. Adhikari told New Business Age.

The board's study indicates that this tendency is particularly pronounced among founders of hydropower companies. The study revealed that many founder shareholders of Hydropower Group sold their shares immediately after the lock-in period ended, which could jeopardize public investments.

Previously, under the influence of the current Minister for Energy, Water Resources, and Irrigation, Deepak Khadka, the Ministry of Finance had requested SEBON to remove the lock-in period for Menchiam Hydropower Limited, which was promoted by him.

There is confusion regarding the share ownership of general people, especially since hydropower projects built under the Construction, Ownership, Operation, and Transfer (BOOT) model must be handed over to the government after a specified period. In such cases, when founders sell their shares, the public bears the entire risk. Additionally, SEBON plans to amend regulations and guidelines concerning public issues of securities through book building.

So far, Sarbottam Cement and Reliance Spinning Mills have received SEBON’s approval for share issuance via book building method. However, the IPO process for Reliance Spinning Mills, which has courted controversy, has been halted. In the book building method, qualified institutional investors purchase a portion of a company’s shares at a set price before the IPO. The public issuance is based on this price.

The spokesperson noted that there have been suspicions of collusion in public securities issuance via book building, prompting necessary amendments to current regulations and guidelines.

Although the net worth is low, the suspicion of collusion has increased as institutional investors are seen purchasing shares at high prices. Currently, qualified institutional investors are required to purchase 40 percent of the shares initially, compared to 70 percent in India. The board is considering increasing this ratio to reduce risk to common investors.

In the case of Reliance Spinning Mills, qualified institutional investors paid Rs 912 per share. According to regulations, shares can be sold to the general public at a 10 percent lower price. However, after attempting this, the company reported a decrease in net worth per share by half, raising concerns about the risk associated with purchasing shares of Reliance Spinning Mills.

The decline in the company's net worth is attributed to potential liability for the trunk line and dedicated feeder expenses to the Nepal Electricity Authority, which were not accounted for when selling shares to institutional investors.

Previously, collusion was also suspected in the sale of Sarvottam Cement shares through the book-building method.

The board has indicated that new laws will be enacted to facilitate the issuance and trading of green bonds, energy bonds, and other new financial instruments. Additionally, the board has included in its policy and program the implementation of reporting formats for statements submitted by securities brokers and traders, merchant bankers, and collective investment funds.