Most public limited companies not interested in making IPO
Oct 11, 2014-
A vast majority of public limited companies are not interested in making initial public offerings (IPO) with only 237 out of the 1,269 companies registered with the Office of the Company Registrar having sold shares to the general public so far.
Although most of the public limited companies belong to the real sector, very few of them are listed on the Nepal Stock Exchange (Nepse). Among the companies listed on the stock exchange, 187 are banks and finance companies.
A very small number from the real sector are listed on the Nepse. In the segment, 22 are insurance companies, 18 are related with manufacturing and processing, four are hotels, six are hydropower companies, four are related with trading and two are from service sectors.
Niraj Giri, spokesperson at the Securities Board of Nepal (Sebon), said the lack of interest among these companies to make IPOs could be due to the fact that most of them are operating with a low amount of capital. “In the past, there was no lower limit of capital investment for these companies,” he said.
However, he added that the number of participating companies from the real sector could increase in the future. “Recently, the government has come up with a provision that public limited companies must have a capital investment of at least Rs 10 million,” said Giri. “The need for a large amount of capital could compel these companies to IPO in the future.”
Public limited companies usually IPO when they need to raise a large amount of capital. In addition, IPOs can also help them to expand their business. The government has been providing a 10 percent rebate on income tax to companies which make IPOs.
“As there is no compulsion for companies in the real sector to IPO, even such facilities have not been able to attract big companies which have been making huge profits” said Giri. According to him, public limited companies can IPO whenever they need to increase their capital.
Meanwhile, Sebon has planned to implement a free pricing system for their IPOs with the aim of increasing the participation of the real sector in the stock market. The system allows companies to fix their own premium rate for their IPOs depending on their financial position.
The regulator was also been mulling enforcing other alternatives like Book Building and Dutch Auction along with free pricing.
Under Book Building, the final price is set on the basis of the minimum and maximum prices as prescribed by institutional investors.
Likewise, Dutch Auction permits investors to fix the quantity and the maximum prices at which they want to purchase shares. Giri said they were planning to introduce these systems by amending the existing act.
Published: 11-10-2014 10:01