Book building to attract real sector firms to stock market

Kathmandu, Mar. 24

The Securities Board of Nepal (SEBON) has said that it had implemented book building method to attract more real sector companies to create diversity at the stock market that is vastly dominated by bank and financial institutions (BFIs).

“The domination of a single sector in the share market has sometimes created challenges to maintain the pace and balance of the market at times. Even a small policy twist by the Nepal Rastra Bank and Insurance Board would make a huge impact on the market,” Executive Director of the SEBON, Niraj Giri, said in an interaction with journalists organised by Nepalese Association of Financial Journalists (NAFIJ).

Book building is a process to determine the price of a unit of a share of a company by an underwriter. The SEBON enforced directives for book building in Nepal since last year.

This is a new method in securities market in Nepal which was applied as the country failed to attract real sector companies in the stock market even after years of efforts.

According to Giri, the aim of the method is to get the real value of the respective company from the market and motivate good companies to enter the stock market.

However, the capital market regulator is yet to decide on the range of opening price for book building. But it would ensure that the cartels would be checked in determining the price. “All the documents of the concerned institutions would be scrutinised by SEBON. Securities market is built on the good and healthy information so transparency and good practice should be maintained,” said Giri.

A company with credit rating above average, net worth one-and-a-half times higher than the paid up capital, and profit earning in the last three fiscal years can issue Initial Public Offering (IPO) through the book building method.

To save public investors from risks, the bylaws have a provision to sell 40 per cent of the shares to institutional investors. They cannot sell their securities within six months from the procurement.

Likewise, public investors can buy the shares of the respective company at 10 per cent lower than the ‘cut off price’ set for the institutional investors.

Shivam Cements Limited had issued its IPO at a premium price a couple of years ago. Currently, Sarbottam Cement is in the process to issue IPO as per the book building method.

Published in The Rising Nepal daily on 25 March 2021.