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IPOs worth Rs4.14 billion awaiting SEBON’s approval amid investor disinterest

   September 20, 2019        519        Rajesh Khanal

Kathmandu- A dozen companies, several of which are active in hydropower generation, are awaiting the regulator’s approval to come out with their initial public offerings (IPOs) cumulatively worth Rs 4.14 billion, a spokesperson for the Securities Board of Nepal (SEBON) said on Thursday.

Niraj Giri told the Post that Nepal Reinsurance Company plans to issue its IPO worth Rs 1.6 billion, the largest among the companies awaiting SEBON’s nod. The country’s only reinsurance company has planned to raise its paid-up capital to Rs10 billion from the existing Rs8.40 billion via issuance of the IPOs, he added.

He said the hydropower companies had come up with their IPO plans after the regulator made it mandatory for these companies to issue at least 10 percent of their stock to the locals while the remainder is open to subscription by the general public.

The hydropower companies’ move comes amid a declining interest among investors to purchase their shares.

For example, Panchthar Power Company had floated 962,500 units in its IPO last February, out of which only 18.16 percent were subscribed. Likewise, Shuvam Power this time around plans to float 180,580 of its unsubscribed shares that the company had issued to local people.

Out of 32 hydropower companies listed on the Nepal Stock Exchange, share prices of 18 companies are below Rs100 per unit, the base rate for the primary shares.

An annual report of Nepal Stock Exchange showed the market index of hydropower group was 3,075 points in 2013-14, which has since come down to almost one-third. On Thursday, the group’s index closed at 962.19 points.

Kumar Pandey, vice-president of Independent Power Producers Association Nepal, said the low rate of returns that the hydropower companies have been offering to their shareholders, of late, is the primary reason behind a lack of interest among investors. “Profits of several hydropower projects, which were said to be lucrative until a few years ago, are getting lower now,” said Pandey.

He further noted that exorbitant rate of bank interest on loans and poor transmission lines are increasing the cost of construction and operation for power developers. “This, ultimately, lowers the dividend for the shareholders,” he said.

In the past, IPOs used to be oversubscribed when it came to the issuance of hydropower companies. But, lately, the market sentiments have turned bearish due to banks’ higher interest rates and inconsistent government policies. This has impacted investor subscription to IPOs of hydropower companies.

The Kathmandu Post