Real sector companies still reluctant to go public KATHMANDU, Jan 9: With banks and financial institutions (BFIs) dominating the stock market, investors are finding it difficult to diversify their portfolio and get rid of the risk emanating from concentration of their investments in a certain sector. Most of the public limited companies have been shying away from floating their shares to public largely owing to lack of any tangible benefits and encouragement for being listed in Nepal Stock Exchange (Nepse). Though more than 12,000 public companies are registered with the Office of the Company Registrar (OCR), only 235 companies have issued their shares to general public. Around 86 percent of these companies are from financial sector. Out of 235 listed companies in Nepal Stock Exchange (Nepse) as at mid-November 2014, 201 are banks and financial institutions (including insurance companies) followed by production and processing industries (18), hotels (4), business entities (4), hydropower (6), and other companies (2). Most of the public companies, which have issued public shares, have done so due to regulatory requirements rather than their interest to go public. Nepal Rastra Bank (NRB) and Beema Sansthan (BS) have made it mandatory for the BFIs and insurance companies, respectively, to float at least 30 percent of their shares to the public. It is one of the reasons behind the dominance of financial sector in the country´s only stock market. Shreejesh Ghimire, CEO of NMB Capital, told Republica that existing pricing mechanism is the main reason that is discouraging public companies from issuing public shares. Companies can float IPO only after three years of registering profit at a face value of Rs 100. A company might not be interested to issue its share at Rs 100 when it is earning profit, Ghimire said. He was of the view that companies should be allowed to offer its shares to public at a premium rate. Though a company may issue its shares at premium rate, remaining within the limit of Net Worth per Share derived from latest audit, such price does not involve the business value of that company. “The regulator should let the company to offer securities at a price derived from the independent valuation. But a reasonable band can be imposed while doing so,” Ghimire added. Experts say the government has done nothing to encourage public companies to float initial public offering (IPO). “Most of the public companies are content with their current business volume and have already arranged required capital on their own. Why would such company offer its shares to the public?” Narendra Sijapati, former president of Stock Brokers Association of Nepal (SBAN), wondered. Also, the government is not giving any incentive to companies who have gone public, and treating them on par with companies who have not issued public shares. Saying that listing of higher number of companies in the stock market helps to make the country´s economy more vibrant, Sijapati said the government should announce some incentives to companies that offer shares to public. Another reason why companies are reluctant to go public is related to corporate disclosures that they are required to make at a regular interval once they are listed on the stock market. Apart from publishing quarterly financial reports, aspirant companies are also required to make public their prospectus which contains information about the issuer, main functions to be done by the issuer, information pertaining to legal action, economic condition, general administration, management of the issuer and economic statements, among others. “Many companies, which are running like a personal fiefdom, in Nepal would find it awkward to show compliance to regulatory requirements,” a merchant banker told Republica, seeking anonymity. Source: Republica
Posted on: Fri, 09 Jan 2015 05:31:22 +0000
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