Nepal's Capital Market Poised for Transformation: New Bill Proposes Lower IPO Face Values

Nepal's capital market is on the cusp of a significant transformation, as the government moves to amend a decades-old provision that has long mandated a uniform face value of NPR 100 for public company shares. The Ministry of Industry, Commerce, and Supplies has drafted a new 'Company Law Bill, 2082,' which proposes a groundbreaking change: allowing companies to issue shares at face values other than the traditional NPR 100. This legislative initiative is expected to democratize the primary market, making investments more accessible to a broader segment of the population.

The proposed bill outlines that the minimum face value for public company shares could be set at NPR 50, or any amount divisible by 10, such as NPR 10, NPR 20, or NPR 30. If this provision is enacted, it will open new avenues for companies to tailor their share issuance strategies to their specific needs and market conditions. This flexibility marks a departure from the rigid NPR 100 standard that has predominantly governed Nepal's stock market, with only a few exceptions.

The primary objective behind this reform is to enhance participation in the capital market, particularly among small-scale investors and students. By lowering the entry barrier, the government aims to foster a more inclusive investment environment, allowing individuals with limited capital to partake in the growth stories of Nepali companies. Currently, only mutual funds typically offer units at a face value of NPR 10, making this a novel concept for direct equity investments in most public companies.

Historically, the Nepali stock market has seen rare instances of companies issuing shares at face values below NPR 100. Soaltee Hotel Limited, one of the oldest listed companies on NEPSE, stands out with a face value of just NPR 10 per share. Despite this lower face value, its shares have historically traded at significant premiums, demonstrating that market value is driven by company performance and investor sentiment, not solely by the nominal face value. More recently, Hathway Investment Nepal Limited managed to issue ordinary shares at an अंकित मूल्य (face value) of NPR 50 per share, but this required special permission from the Nepal Securities Board (SEBON), highlighting the regulatory hurdles under the old framework.

The new Company Law Bill, 2082, seeks to institutionalize and clarify these exceptions, making them a standard option rather than a special privilege. This legislative clarity is crucial, as evidenced by past attempts by companies to issue shares at lower face values. For instance, Akama Hotel initially planned to issue an IPO at an NPR 50 face value, inspired by Hathway Investment's success. However, due to prevailing regulatory pressure and the absence of a clear legal provision, the hotel was compelled to revise its application and proceed with the traditional NPR 100 face value. This incident underscores the necessity of a comprehensive legal framework to support such innovations.

Should the bill pass through Parliament and become law, it is anticipated that the number of companies issuing shares at NPR 10 or NPR 50 face values will significantly increase. This shift is expected to inject greater liquidity into the primary market, potentially leading to more dynamic price discovery and a more vibrant capital market overall. For investors, it means greater affordability and diversification opportunities, while for companies, it offers enhanced flexibility in capital raising and potentially broader shareholder bases. This progressive step aligns Nepal's capital market practices more closely with international standards, where varying face values are common, and the focus is increasingly on market capitalization and earnings per share rather than nominal share value.