September 28: The Electricity Regulatory Commission (ERC) has tightened hydropower companies from issuing right shares. The commission took such decision after they were found to be issuing right shares haphazardly. 

The commission has issued a directive on Pre-Approval and Regulation of Public Issuance of Shares of Hydropower Companies, 2078 to regulate the companies from issuing their shares.

From now on, hydropower companies are required to get prior approval from the commission while issuing right shares. Earlier, hydropower companies did not require to get prior approval from the commission to issue right shares.

From now on, after the board of the companies decides to issue right shares, it needs to send the proposal to the commission to receive the pre-approval. Once the commission gives green signal, then only can the companies present the right shares proposal in the General Assembly Meeting of the respective company.

Ram Prasad Dhital, a member and spokesperson of the commission, said that such provision was introduced after the companies started issuing right shares indiscriminately. Although the commission has introduced strict provisions to control right share issuance, it has allowed the companies from making cross-holding investment. Dhital informed that one company can invest in the shares of other companies under the new provision. 

A company can make the institutional investment of fifty one percent or more in other projects that shall remain under the same company.  Similarly, provision has been made to make institutional investment in secondary company's projects or establishing secondary companies for the construction of the project. Capital required for the investment should be raised by issuing right shares. The right shares have to be issued in the ratio of 1:2.

There is also a provision to invest in another company without being the parent company with less than 50 percent shares. However, when investing in such a company, physical progress of the project should be twenty five percent. Such companies should issue right shares in the ration of 1:1. To issue right shares for both the purposes, funds raised from earlier right shares should have been utilized in the construction of the project. 

The commission has also set other conditions for cross-holding investment. The parent company should have started commercial power generation from its own project. Likewise, the company must be listed on the Nepal Stock Exchange. The power purchase agreement (PPA) of the project should have been finalized and the financial resources should have been arranged for the construction of the project. 

The commission has also paved the way to issue right shares for the projects that are under construction. The commission has said that if the construction of the project is not completed because of various reasons even after the issuance of Initial Public Offering (IPO) then the company will be allowed to issue right shares. In this respect, the cost of construction of the project must have gone up due to uncontrollable circumstances. Eighty percent of physical progress of such projects should have been completed. 

A clear financial action plan should be made and approved by the Board of Directors and the General Assembly in case of the project that are yet to be completed.