The Securities Board of Nepal (SEBON) has amended the Securities Registration and Issue Guidelines, paving the way for banks and financial institutions to issue perpetual non-cumulative preference shares for the first time.

Perpetual non-cumulative preference shares are preference shares with no maturity date that do not accumulate unpaid dividends.

Through the ninth amendment to the directive, SEBON has created a legal framework allowing licensed banks and financial institutions to issue such shares, provided they have prior approval from Nepal Rastra Bank (NRB). These preference shares will have a face value of Rs 100 and can only be issued to institutional investors through a private placement process involving fewer than 50 investors.

Public investors, securities traders, and mutual funds are barred from participating in these placements. Issuers must provide detailed risk disclosures to prospective institutional investors, and the investors must submit a written acknowledgment confirming they have read and understood the risks involved. Sales managers are required to submit the placement documents to SEBON at least two working days before the allocation.

The dematerialization of these shares will be handled by the Central Depository System and Clearing Ltd (CDSC), and trading will follow the procedures set by the stock exchange. Only institutional investors will be allowed to trade these shares after issuance.

Issuers of such preference shares cannot withhold dividends when distributable profits are available—unless restricted by the regulator. Provisions for redemption or conversion of the shares into common stock will follow NRB’s guidelines.

Previously, SEBON had denied approval to Kamana Sewa Bikas Bank despite it being the first to receive NRB's consent for issuing such shares, due to the absence of legal provisions. With the new amendment, Kamana Sewa Bikas Bank and about half a dozen other institutions preparing to issue such shares are expected to benefit, particularly in easing capital adequacy pressures.

The revised directive will come into effect from the upcoming fiscal year starting July 17, 2025.

IPO Sale Period Shortened for Nepalis Working Abroad

SEBON has also revised the IPO issuance period for Nepalis working abroad. Under the updated rule, the minimum public offering period for this group has been reduced from 15 calendar days to at least four working days. However, if the securities are not fully subscribed within this period, the issuance may be extended up to 15 days.

This change comes in response to consistently high oversubscription rates for IPOs allocated to foreign-based Nepalis. SEBON has noted that demand for these shares often far exceeds supply, resulting in allotments through lucky draws.

Since Fiscal Year 2022/23, 10% of shares offered to the general public must be reserved for Nepalis with approved labor permits working overseas—a provision first implemented in the IPO of Kalinchowk Darshan Limited in December 2022. During that issuance, 108,000 shares were offered to Nepalis abroad, and 6,611 applicants received shares. While shares were initially distributed to all applicants, growing demand now means even securing 10 units requires a stroke of luck.

SEBON expects the new shortened offering window to still generate oversubscription due to strong investor interest from the Nepali diaspora.