Nepal Stock Exchange (Nepse) is all set to introduce new standards for classification of companies listed on the stock market.

The new standards would come into effect if revisions made by Nepse to the Securities Listing Bylaw 1996 are endorsed by the Securities Board of Nepal (Sebon), the securities market regulator.

As per the revised version of the bylaw, listed companies would be divided into four categories—A, B, G and Z.

These classifications, according to Nepse, would promote good governance and transparency among listed companies. “The new standard will also make listed companies more accountable to shareholders and encourage listed firms to submit financial reports on time,” Nepse Deputy Spokesperson Murahari Parajuli said.

Currently, Nepse puts better-performing companies in Group ‘A’. Apart from this, there is no other category at Nepse. Companies enrolled in Group ‘A’ consider themselves as elites, as they enjoy preferential treatment. For example, share investors can gain access to margin loans only if they invest in companies listed in Group ‘A’. But once the new bylaw is introduced listed companies will have to meet stringent conditions to become a member of Group ‘A’. Currently, a listed company with a minimum paid-up capital of Rs20 million, at least 1,000 general shareholders and ability to generate profit for three consecutive years can make it to Group ‘A’.

“The new bylaw has made it mandatory for companies to earn profit for five consecutive years to get enrolled in Group A,” said Parajuli. Also, the listed company’s book value should not be lower than the paid-up value and annual financial report must be submitted to Nepse within six months of the end of the fiscal year.

“If the new bylaw is endorsed, only companies that have provided at least 20 percent bonus for five consecutive years will be able to make it to Group A,” Parajuli said.

The Group ‘B’ entry criteria, as proposed by the revised bylaw, on the other hand, are paid-up capital between Rs10-20 million, 500-1,000 shareholders, distribution of up to 10 percent dividend to shareholders for three consecutive years and submission of financial report within six months of the end of the fiscal year.

If companies do not meet Group ‘A’ or ‘B’ entry criteria, they will be categorised as Group ‘G’ firms. But if listed companies remain closed for two consecutive years, or fail to submit financial reports on time, conduct financial audit of two successive years and adhere to Nepse’s directive for six months, they will be lumped in Group ‘Z’. Companies listed in Group ‘Z’ can be delisted at any time, according to Nepse.

110 firms make it to Group ‘A’

A total of 110 out of 206 listed companies have made it to the Group ‘A’ this year, according to Nepal Stock Exchange. All commercial banks, two companies from ‘other’ group, five from hydropower sector, two from hotel sector, 16 from insurance sector, 21 from development bank sector, 11 from finance sector, 21 from development bank sector and 26 from microfinance sector have been classified as Group ‘A’ companies.