May 15: Securities Board of Nepal (SEBON) has shown flexibility on the issuance of right shares at premium. The regulator has long opposed to issue right shares at premium. However, SEBON has signalled that the issuance of right shares at premium might be addressed if such decision is endorsed by the general meeting of respective companies.

“If investors themselves are willing to pay at premium, then we do not need to block it,” says Niraj Giri, Spokesperson of SEBON. Previously, SEBON opposed the system citing lack of autonomous pricing mechanism in domestic share market. The regulator also cites the lack of practice of purchasing unsold right shares by commercial buyers and market maker through systematic pricing mechanism.

But again, SEBON might not approve the proposal of issuing right shares at premium easily.

“Some companies are taking the proposals on their AGMs. We will discuss the issue if such proposals come to us,” says Giri. Currently, Nepal SBI Bank has proposed to issue right shares at premium.

Meanwhile, SEBON has also relaxed rating arrangement of right shares to banks and financial institutions with some conditions from Friday. Although, seeing the possibilities of fetching proposals of right share issuance at premium for approval, SEBON has made rating of such institutions mandatory. “Institutions issuing right shares at par (Rs 100) need not to do rating,” states SEBON directive.

SEBON has relaxed rating of banks and financial institutions with some conditions.  As per the SEBON directive, companies having per share net worth above Rs 100 or market value of share price above par value do not need to carry out rating. Similarly, companies earning continuous profit for last 5-3 years or bad debt ratio within limitation will also get the exemption. Likewise, the companies that are registered in company registrar office disclosing capital increase plan in article of association and regulation will also get such immunity. Most of the financial institutions are likely to fulfil the conditions of the board.

After 10 months of Nepal Rastra Bank’s capital increment directive, SEBON has relaxed the rating arrangement. Citing right shares as medium to increase paid-up capital, need of carrying out right share issuance more than once and rating process that takes more than two months, banks have been demanding removal of rating system. SEBON made the new arrangement as per the request of NRB.