SEBON Seeks Clarification on New Price Range Policy; NEPSE May Face Pressure to Revise

The Securities Board of Nepal (SEBON) has taken note of the recent decision of Nepal Stock Exchange (NEPSE) to revise the price range mechanism for determining the opening price of newly-listed initial public offerings (IPOs) in the secondary market.

On February 13, NEPSE fixed the opening price range for the first trading day of shares of Reliance Spinning Mills and Salapa Bikas Bank based on their face value of Rs 100 per share. Previously, NEPSE had determined the price range—up to three times the company’s actual net worth per share.

Reliance Spinning Mills had issued shares through the book-building method at up to Rs 912 per unit. However, NEPSE set the opening price range for its secondary market debut at up to three times the face value—Rs 300 per share. NEPSE applied the same Rs 300 ceiling for Salapa Bikas Bank.

After learning about the change in the price range mechanism, SEBON wrote to NEPSE seeking clarification. A senior SEBON official said the board sought an explanation as the long-standing practice had been altered without prior notice.

Although the authority to determine the trading price of listed securities in the secondary market rests with the market operator, the official argued that such decisions must consider their broader impact. “The board wants to know why NEPSE deemed it necessary to change a price range practice that had been in place for more than a decade,” the official said. “We have received NEPSE’s response and will take necessary decisions based on it.”

The official added that SEBON may instruct NEPSE to revise the new provision, as the current arrangement could effectively discourage companies from issuing shares through book building or at a premium price.

NEPSE, however, has clarified that it determined the opening price based on a decision made in 2011, which allows the use of either face value or net worth as the basis for fixing the price range. NEPSE Information Officer Murahari Parajuli said the exchange implemented the provision by adopting face value as the reference point and informed SEBON of the decision in a letter sent on February 17.

Meanwhile, the share prices of the two companies have continued to rise sharply within the revised price band. Although the shares were listed on February 13, public holidays limited trading to three days as of February 22. Both stocks debuted at the maximum allowed price of Rs 300 per share and recorded gains in all three trading sessions.

As of February 22, Reliance Spinning Mills closed at Rs 395.30 per share, while Salapa Bikas Bank settled at Rs 399.30 per share.

Salapa Bikas Bank had issued shares at Rs 100 per unit. Reliance Spinning Mills sold shares at Rs 912 per unit to qualified institutional investors and at Rs 820.80 per unit to the general public.

Based on the closing price on the third trading day, general investors of Reliance Spinning Mills are facing a notional loss of Rs 425.50 per share. In contrast, general shareholders of Salapa Bikas Bank are enjoying a notional gain of Rs 299.30 per share.