On 16th January, the Security Board of Nepal (SEBON) released the regulation on SME securities trading — Securities Issuance and Transactions of Small and Medium Enterprises Regulation, 2081.
The approved regulation paves the way for companies with a maximum capital of NRs 250 million to raise capital through the secondary market while their securities will be traded under the sub index category of the Nepal Stock Exchange (NEPSE). Earlier, the initial draft proposed a separate platform to facilitate the trading of shares but later finalised on the sub index category.
Guidelines for SMEs to raise capital
- SMEs can issue shares after one year of operation.
- If a company merges or changes its shareholding, it must re-register its securities, following the initial registration process.
- A prospectus must be prepared and submitted to SEBON for approval, including details on capital structure, financials, agreements, and fees.
- SMEs can issue IPOs for 30% to 49% of their capital, with a face value of NRs 100, ensuring the paid-up capital does not exceed NRs 250 million post-IPO.
- Credit rating is optional but may be required by SEBON if necessary.
- Before issuing an IPO, 5% must be bought by merchant bankers and 15% by institutional investors, both with a 3-year lock-in period.
- If an IPO is undersubscribed (less than 50%), the issuance will be canceled.Share allotment must be completed within 15 days of the subscription closing date.
- SMEs must complete annual audits and general meetings on time.
- SMEs can issue IPOs at a premium if they show consistent profits for the last three years and a per-share net worth higher than their paid-up capital.
- Premium IPOs can be priced up to twice the per-share net worth.
- Companies with directors or major shareholders on the Credit Information Bureau’s blacklist or convicted of financial crimes are prohibited from issuing securities.
However, some investors have expressed their concerns that lax regulations could lead to speculative trading or the entry of unstable firms. To mitigate risks, SEBON may need to implement stricter criteria for IPO approvals, ensuring that only financially sound and well-managed companies gain access to public investment.
Overall, this new regulatory framework is a step toward a more inclusive capital market, providing SMEs with much-needed financing avenues while safeguarding investor interests through structured trading mechanisms.
By allowing companies to issue shares after one financial year of operation, SEBON has created an opportunity for emerging businesses, including startups, to raise funds through public investment.
