The Securities Registration and Issuance (Seventh Amendment) Regulation, 2080 (2023) makes a series of changes to the 2073 (2016) Regulation, introducing green bonds, relaxing the operating history requirement for newly converted public companies, and reworking how a premium is calculated on an initial public offering.
This note sets out each change brought by the Securities Board of Nepal (SEBON) through the amendment.
New Definitions
| Term | Definition |
|---|---|
| Paid-up capital | The amount paid by the shareholders of an incorporated entity in accordance with the number of shares they have agreed to subscribe. |
| Green bond | A bond issued by an incorporated entity to fund environmentally friendly projects. The term also includes bonds issued for investment in projects aimed at mitigating the adverse effects of climate change through sustainable development. |
Restriction Based on Remaining Licence Term
For businesses other than those subject to periodic licence renewal, an incorporated entity cannot apply for securities registration and public issuance where the remaining term of the operator’s licence is less than ten years.
Relaxation of the Operating History Requirement
The earlier Regulation required a public company to complete a full financial year of business operations before it could qualify for public securities issuance. The Seventh Amendment waives that requirement where all of the following are satisfied:
- The company was initially registered as a private limited company.
- It conducted business for a minimum of two financial years.
- It later converted into a public limited company.
- The audit report for the most recent financial year has been endorsed by the general meeting held after the conversion.
In addition to the successful conclusion of the audit and the general meeting, that same audit report must not have been qualified by the auditor raising concerns over the entity’s status as a going concern.
Issuance of Green Bonds
An incorporated entity is eligible to issue green bonds or debentures following approval from the Board. These are also available for investment by foreign investors, in compliance with applicable laws. Further details and arrangements are to be specified in the Directive.
Issuing Securities at a Premium
Incorporated entities with a paid-up capital of at least one billion rupees can issue securities at a premium, provided they have recorded a net profit for the preceding two years.
How the premium is calculated
| Entity | Basis of calculation |
|---|---|
| Paid-up capital of at least NPR 1 billion | The average of: capitalised earnings from the audit reports of the last two financial years as endorsed by the general meeting; the present value of future cash flows (discounted cash flows); and internationally practised valuation methods acknowledged by the relevant Nepalese laws. |
| Other entities | Capitalised earnings from the audit reports of the last three financial years. The remaining methodology is unchanged. |
- The premium value so determined must be certified and submitted by the underwriter.
- The price inclusive of the premium must be the lower of the average price determined above, and a price that is twice the net worth per share according to the most recent audited financial statement approved by the general meeting.
Lock-in for Private Equity and Similar Funds
Shares owned by private equity, venture capital, hedge funds or similar funds registered with the Board, funds registered abroad, or entities with foreign government investment holding approval to invest in Nepal under prevailing law, may be sold one year after the date of share allotment of the initial public offering made to the general public.
Securities for Non-Resident Nepali Investment
An investment company established through joint investment between the Government of Nepal and Non-Resident Nepali is authorised to issue securities exclusively to Non-Resident Nepali holding foreign citizenship or a permanent residence permit in a foreign country, for investment in shares, bonds and debentures of infrastructure projects, subject to approval by the Nepal Rastra Bank.
Trading of securities issued for investment in foreign currency shares, bonds or debentures is limited to transactions involving non-resident Nepalese who hold foreign citizenship or a permanent residence permit from a foreign country. Other arrangements are to be provided in Directives formulated with the approval of the Nepal Rastra Bank.
Electronic Filing
Incorporated entities are able to submit their documents and prospectus regarding the issuance of securities to the Board through an electronic medium as prescribed by the Board.
Speak to Our Team
If you are planning an issuance, assessing whether the premium rules apply to you, or considering a green bond, get in touch with Bishal Panthi, Chartered Accountant, or Tanija Singh, Attorney at Law. You can also contact the firm directly, or read more about our corporate and project finance and regulatory and transactional advisory services. Our commentary on the carbon economy in Nepal covers related ground on green finance.
This publication is not intended to be used as a basis for undertaking any significant transactions, financial or otherwise, without consulting appropriate professional advisers.
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