Er.energyNP@Gmail.com

The Independent Power Producers’ Association, Nepal (IPPAN) has raised objections to several provisions proposed by the Securities Board of Nepal (SEBON) in its draft directive on general eligibility requirements for public issuance, arguing that a uniform IPO framework could adversely affect Nepal’s hydropower sector.

IPPAN has urged SEBON to review the proposed directive by taking into account the distinct nature, long gestation period and large capital requirements of hydropower projects. It has also recommended removing or amending provisions that it believes could restrict capital mobilization, delay IPOs and disrupt investment in the energy sector.

IPPAN registered its recommendations with SEBON on Tuesday.

IPPAN President Mohan Dangi said hydropower is directly linked with economic growth, industrialization, employment generation, government revenue and foreign exchange earnings, and therefore requires long-term and substantial capital.

He said regulations governing public issuance should balance investor protection with the specific characteristics and financing requirements of individual sectors.

“Hydropower requires a different regulatory framework from other sectors,” Dangi said. “Banking, insurance, hydropower, pharmaceuticals and manufacturing have different business models and capital structures, so applying a single set of standards to all institutions is not appropriate.”

IPPAN has proposed that hydropower companies be covered under a separate chapter with a separate IPO checklist.

Calls to remove restrictions that could delay IPOs

SEBON’s draft proposes that a company should have been continuously operating its business before issuing ordinary shares to the public. IPPAN has argued that such a requirement would be impractical for hydropower projects.

Hydropower projects require significant capital during the construction phase, making public investment an important source of financing before commercial operation begins.

IPPAN has therefore proposed that hydropower companies be allowed to apply for IPOs once a project reaches approximately 65% physical progress.

Objection to proposed net worth requirement

IPPAN has also opposed the proposed requirement that an institution’s net worth per share should not be below its face value.

It has urged SEBON to remove the provision for productive industries, particularly hydropower companies.

According to IPPAN, retaining the proposed net-worth requirement could prevent around 60% of hydropower projects from issuing shares to the general public.

The association has argued that the financial structure and investment cycle of infrastructure projects need to be considered when determining eligibility for public issuance.

SEBON should not prescribe debt-to-equity ratios

IPPAN has also objected to the proposed provision allowing SEBON to prescribe sector-specific standards relating to debt-to-capital ratios, interest-payment capacity and other financial indicators.

The association has specifically recommended removing the provision concerning debt-to-capital ratios, arguing that financing structures vary substantially across projects and sectors.

Objection to fit-and-proper test for promoters

IPPAN has raised concerns over the proposed requirement for SEBON to conduct a fit-and-proper test on founders, directors and chief executive officers of companies seeking public issuance.

It has argued that founder shareholders should not be included in such a test in a manner that could block an entire IPO because of the status of an individual shareholder.

IPPAN said it would be unfair for thousands of other investors to be affected if one founder shareholder were blacklisted or found to have been involved in financial misconduct.

It has also asked SEBON to clearly define whom the proposed provision concerning the period required after removal from a blacklist is intended to cover.

Calls for time-bound IPO approval process

IPPAN has called for clear statutory deadlines for SEBON’s preliminary screening and detailed evaluation of IPO applications.

Although the draft provides for checking the completeness of applications, required documents, fees and minimum legal qualifications, IPPAN said it does not establish sufficiently clear deadlines for the process.

The association has proposed that SEBON complete the preliminary review within 15 days of receiving an application. Where additional documents are requested, the review should be completed within seven days of receiving the additional documents.

It has further proposed that the detailed evaluation be completed within 45 days, with a mandatory final decision within a maximum of 60 to 90 days.

IPPAN has also asked SEBON to remove the proposed consideration of environmental risk as a basis for evaluating applications for share issuance by hydropower companies, arguing that such matters are already addressed through the relevant environmental and project-approval processes.

Existing IPO pipeline should follow existing rules

IPPAN has also called for protection of hydropower companies that have already entered the IPO approval pipeline.

It has urged SEBON to allow hydropower companies whose IPO applications were already registered under the General Guidelines on Public Issuance, 2074 to proceed under the existing rules rather than being subjected retrospectively to new requirements.

The association has also called for an adequate transition period for companies after the new directive comes into force.

IPPAN’s recommendations come amid SEBON’s efforts to tighten and standardize eligibility requirements for companies seeking to raise capital from the public. For Nepal’s hydropower sector, however, the proposed framework has raised concerns over whether stricter uniform requirements could unintentionally restrict one of the country’s largest infrastructure investment sectors from accessing the capital market.