Why IPPAN opposes SEBON’s proposed IPO rules

The Independent Power Producers’ Association, Nepal (IPPAN) has urged the Securities Board of Nepal (SEBON) to revise its proposed IPO eligibility guidelines, warning that the draft provisions could prevent nearly 60% of hydropower projects from issuing shares to the public.

SEBON published the draft General Eligibility Guidelines for Public Issuance, 2083, on September 17, proposing stricter financial, operational and corporate governance requirements for companies seeking initial public offering (IPO) approval.

Under the proposed guidelines, a company’s net worth per share must not be lower than the face value of its shares, generally set at NRs 100. IPPAN argues that the requirement would disproportionately affect hydropower companies, which require substantial investment during construction but may not generate revenue until their projects begin commercial operation.

In a video statement on September 20, IPPAN President Mohan Kumar Dangi said the proposed minimum net worth requirement was impractical for the hydropower sector, as depreciation of equipment and other assets during construction could reduce net worth per share below NRs 100 before a project starts generating electricity.

The association has proposed allowing hydropower companies with net worth per share as low as NRs 90 to issue IPOs, taking into account the projects’ power value and future earning potential.

According to IPPAN, nearly 60% of hydropower projects could become ineligible for public issuance if the proposed net worth provision is implemented without changes.

The association has also raised concerns about a potential conflict between the proposed requirement and existing securities regulations, which require hydropower projects to allocate up to 10% of their issued capital for residents of affected areas. IPPAN argues that preventing companies with net worth below NRs 100 per share from issuing IPOs could undermine the provision intended to promote local ownership in hydropower projects.

Another major concern is SEBON’s proposed change to the stage at which hydropower projects can receive IPO approval. Under the existing arrangement described by IPPAN, projects can receive approval once construction is 65% complete. The board is considering requiring projects to reach 100% completion before granting approval.

Dangi said the proposed change would make it difficult for developers to raise funds during construction, when capital requirements are highest. He argued that requiring projects to be completed before IPO approval would defeat the purpose of raising funds from the public to finance construction.

IPPAN has warned that the proposed requirements could discourage investment in the sector, particularly as the government has set a target of producing 30,000 megawatts of electricity within 10 years.

Figures from the stock market also highlight the concerns surrounding the proposed net worth threshold. Of the 111 listed hydropower companies in Nepal, 43 had net worth per share below NRs 100 as of the end of the last fiscal year.

Upper Tamakoshi, one of Nepal’s largest hydropower projects in commercial operation, reported net worth per share of NRs 44.28. Menchhiyam Hydropower, meanwhile, reportedly had net worth per share of minus Rs 25, despite its market share price trading above NRs 250.

IPPAN argues that net worth alone may not accurately reflect a hydropower company’s financial prospects, particularly during construction, when revenue has yet to begin and asset values decline through depreciation.

Beyond the net worth requirement, SEBON’s draft proposes requiring companies to publish three years of audited financial statements, meet management and governance standards, and undergo fit-and-proper assessments of promoters, directors and senior executives.

The proposed framework also includes maintaining a separate bank account for IPO proceeds, disclosing fund utilisation plans and submitting quarterly and annual reports on the use of funds. Applications could face rejection over financial irregularities, serious legal disputes or weak governance practices, while risk-based assessments would strengthen scrutiny of issuers, issue managers and auditors.

IPPAN has called for separate eligibility rules for hydropower companies and recommended that assessments focus on directors and management rather than applying the same screening requirements to all promoter shareholders. It has also proposed exempting companies that have already applied for IPO approval from the new requirements.

The association has suggested that investor protection could be strengthened through comprehensive disclosures, underwriting and credit ratings, enabling investors to assess risks without unnecessarily restricting companies’ access to capital.

SEBON has said it is reviewing feedback from stakeholders and that the proposed net worth requirement could be reduced. A senior board official said a minimum threshold was still considered necessary and that the guidelines would be finalised before pending IPO applications were approved.

The proposed rules come as a large number of companies await approval to issue shares. According to the figures cited in the reports, 112 companies are in SEBON’s IPO pipeline. Separately, 34 companies are awaiting approval to issue shares worth approximately NRs 17.19 billion.