KATHMANDU, FEB 3, 2012
Securities Board of Nepal (Sebon) is bringing the guidelines to provide functional clarity to the underwriters in case they have to purchase the shares, if the issue goes unsubscribed.
“At present there is not much details in the regulations regarding undertakings of the underwriters so the functional clarity will be brought in the new guidelines,” informed director of Sebon Niraj Giri.
The Securities Businessperson (Merchant Banker) Regulation 2064 that governs underwriters does not have provisions explaining for how long the underwriters can keep the shares purchased and what is the exit mechanism.
As the secondary market has cooled down, primary issues are also not being well-received by the public like before.
The Initial Public Offerings (IPOs) of recent times had difficult time getting subscribed unlike the earlier days, when the issues used to be oversubscribed by over 10 times.
Underwriting — that used to be only a formality for the issuers have now become an obligation to ensure the shares will be sold — are the merchant bankers that guarantee to buy unsold shares when an issue is offered for sale to the public.
If the issue goes unsubscribed, the underwriter has to buy the unsold amount of shares to ensure the public offering gets minimum rate of subscription. At present there are seven merchant bankers that have license to work as underwriters.
In August 2011, Bhargav Bikas Bank’s primary issue worth Rs 4 million did not get subscribed completely compelling its underwriter NMB Capital to purchase the shares.
“If such cases increase in the future, regulator has to prepare a concrete framework on how to divest from the share purchased due to underwriting contract,” Giri added.
Sebon is holding talks with other regulatory bodies like Nepal Rastra Bank (NRB), Insurance Board and Company Registrar’s Office so that holding and divestment of shares by merchant bankers will not create any regulatory clashes.
Since numbers of merchant bankers are the subsidiary arms of financial institutions cross holding of stakes is going to be a problem, if underwriters hang on to unsubscribed shares of other financial institutions, according to the central bank regulations.
“NRB does not allow one financial institution to hold more than one per cent of shares in another,” he said, adding that the Board needs to frame the regulation that will not violate the regulation.
“We have been asking Sebon to bring in guidelines that will direct how the unsubscribed shares have to be unloaded and how much shares should merchant bankers be allowed to trade in,” expressed president of Merchant Bankers Association of Nepal Bhishma Raj Chalise.
In the coming days, the market has to gear up for more shares with the upcoming Initial Public Offerings of some four commercial banks that will be offering bigger issues like that of commercial banks and hydropower companies needing more capacity from the side of underwriters, he added.
Source: THT
Securities Board of Nepal (Sebon) is bringing the guidelines to provide functional clarity to the underwriters in case they have to purchase the shares, if the issue goes unsubscribed.
“At present there is not much details in the regulations regarding undertakings of the underwriters so the functional clarity will be brought in the new guidelines,” informed director of Sebon Niraj Giri.
The Securities Businessperson (Merchant Banker) Regulation 2064 that governs underwriters does not have provisions explaining for how long the underwriters can keep the shares purchased and what is the exit mechanism.
As the secondary market has cooled down, primary issues are also not being well-received by the public like before.
The Initial Public Offerings (IPOs) of recent times had difficult time getting subscribed unlike the earlier days, when the issues used to be oversubscribed by over 10 times.
Underwriting — that used to be only a formality for the issuers have now become an obligation to ensure the shares will be sold — are the merchant bankers that guarantee to buy unsold shares when an issue is offered for sale to the public.
If the issue goes unsubscribed, the underwriter has to buy the unsold amount of shares to ensure the public offering gets minimum rate of subscription. At present there are seven merchant bankers that have license to work as underwriters.
In August 2011, Bhargav Bikas Bank’s primary issue worth Rs 4 million did not get subscribed completely compelling its underwriter NMB Capital to purchase the shares.
“If such cases increase in the future, regulator has to prepare a concrete framework on how to divest from the share purchased due to underwriting contract,” Giri added.
Sebon is holding talks with other regulatory bodies like Nepal Rastra Bank (NRB), Insurance Board and Company Registrar’s Office so that holding and divestment of shares by merchant bankers will not create any regulatory clashes.
Since numbers of merchant bankers are the subsidiary arms of financial institutions cross holding of stakes is going to be a problem, if underwriters hang on to unsubscribed shares of other financial institutions, according to the central bank regulations.
“NRB does not allow one financial institution to hold more than one per cent of shares in another,” he said, adding that the Board needs to frame the regulation that will not violate the regulation.
“We have been asking Sebon to bring in guidelines that will direct how the unsubscribed shares have to be unloaded and how much shares should merchant bankers be allowed to trade in,” expressed president of Merchant Bankers Association of Nepal Bhishma Raj Chalise.
In the coming days, the market has to gear up for more shares with the upcoming Initial Public Offerings of some four commercial banks that will be offering bigger issues like that of commercial banks and hydropower companies needing more capacity from the side of underwriters, he added.
Source: THT
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