MoF committee rejects pre-IPO proposal of SEBON

Kathmandu January 29- A committee formed under the Ministry of Finance (MoF) has rejected proposal of the securities market regulator to allow companies to raise funds from the public prior to the launch of initial public offering (IPO).

Earlier, the Securities Board of Nepal (SEBON) had proposed that a provision be incorporated in the Securities Registration and Issue Regulation to allow companies to pool financial resources from the public before the launch of IPO.

SEBON, at that time, had said companies that intend to launch pre-IPO should be registered as a public limited company and should have completed at least one year of operation.

The recommendation was made to pave the way for firms, such as Nepal Purwadhar Bikash Company (NPBC), which had proposed to build 58-km Kathmandu-Kulekhani-Hetauda tunnel highway, to pool financial resources to build mega physical infrastructure projects.

However, a committee formed under Kul Prasad Chudal, undersecretary at the MoF, has rejected the proposal citing possibility of companies fleeing with public’s money.

“In order to monitor activities of companies that are planning to launch pre-IPO, we need a different regulatory mechanism. Unfortunately, we do not have such a mechanism in place. This provides leeway to companies to do whatever they want with funds raised from the public,” Chudal said. “So, it is not advisable to incorporate such a provision in the regulation.”

SEBON has also acknowledged the gravity of problem identified by the MoF.

“What the MoF has said is true. Without the presence of an effective monitoring mechanism, possibility of moral hazard cannot be ruled out,” a senior SEBON official said on condition of anonymity.

One of the reasons that had led SEBON to rethink on its past proposal is permission sought by NPBC to raise a huge chunk of funds required for the project from the public.

“The company was seeking to raise as much as 80 per cent of the funds from the public. This effectively meant the promoters wanted to build the project without taking any money out of their pockets, which was quite frightening,” the official said.

After SEBON’s objection, NPBC had said it would raise around Rs 10.46 billion from promoters and locals of Kathmandu and Makwanpur, around Rs 18 billion through debt financing and Rs 6.97 billion from pre-IPO.

The proposed highway project, which will link Hetauda with the Capital and reduce travel time to one hour, is estimated to cost around Rs 35 billion.

However, NPBC, so far, has not been able to submit a convincing business plan on the project to the Ministry of Physical Infrastructure and Transport.