SEBON's New Chairman Stalls IPO Pipeline: Billions in Capital Formation Halted Amidst Regulatory Uncertainty

Nepal's capital market is currently grappling with unprecedented uncertainty following the recent appointment of Dr. Gopal Prasad Bhatta as the new chairman of the Nepal Securities Board (SEBON) on July 1, 2024 (Ashar 15, 2081 BS). Investors and market participants had eagerly anticipated a swift resumption of the long-stalled Initial Public Offering (IPO) approval process under his leadership. However, nearly a month into his tenure, the situation has not only failed to improve but has taken a concerning turn: SEBON is now reportedly refusing to even register new IPO applications, effectively slamming the brakes on the primary market pipeline.

Previously, the market had been aware of a slowdown in IPO approvals, with no new company receiving approval since April 14, 2024 (Baisakh 2, 2081 BS). The current predicament, however, is far more critical. Sources indicate an "undeclared ban" on the registration of new applications. The last official registration of an IPO application reportedly occurred on May 21, 2024 (Jestha 8, 2081 BS). Since then, despite approximately 25 to 30 companies approaching SEBON with their IPO proposals, the registration department has allegedly refused to accept these files, citing "orders from above." These applications, representing billions in potential capital, are now languishing in unofficial limbo, unrecorded and unacknowledged within SEBON's official system.

This refusal to register applications raises serious questions about regulatory transparency and adherence to due process. As a public regulatory body, SEBON is legally obligated to accept and register applications, initiating the formal review process. Refusing registration is not merely delaying approval; it is an outright denial of entry into the capital market pipeline, a move that lacks any official justification or public notification. Stakeholders are questioning whether the new chairman is operating outside the established legal framework, bypassing the very principles of good governance and rule of law that SEBON is meant to uphold.

The implications of this regulatory paralysis are profound for Nepal's economy and its burgeoning capital market. Currently, over 104 companies are awaiting IPO approval, collectively seeking to raise approximately NPR 69.30 billion. When factoring in the 25-30 companies whose applications have been unofficially rejected, the total capital locked up in this regulatory bottleneck could easily exceed NPR 90 billion. Many of these companies, particularly those in the real sector like hydropower, are under immense pressure from bank interest rates and rely on capital market access to fund their projects and manage their financial health. Preventing them from raising capital through IPOs not only stifles their growth but also poses a significant financial burden, potentially leading to project delays or even failures.

Market analysts and investors are speculating on the underlying motives behind this unprecedented halt. One prevailing theory suggests an attempt to artificially control the supply of shares in the secondary market (NEPSE) to bolster stock prices. While some argue that stricter regulations are necessary, and others believe supply control can boost the market, neither argument justifies the complete cessation of the application process. The core mandate of a capital market regulator is to facilitate capital formation, ensure fair and efficient market operations, and protect investor interests, not to manipulate market dynamics by arbitrarily blocking access.

The lack of official communication regarding this policy shift is particularly troubling. If SEBON intends to revise its securities registration and issuance policies, the standard procedure would involve issuing a public notice, outlining the changes, and providing a clear timeline. Halting the entire capital formation process under the guise of impending policy changes, without any formal announcement, is a severe breach of transparency and accountability. Until new regulations are formally enacted, existing laws should govern the process, ensuring continuity and predictability for market participants.

Dr. Gopal Prasad Bhatta, appointed as an expert, was expected to streamline market operations. Instead, his tenure has begun with actions that appear to impede, rather than facilitate, market functions. The financial community demands answers: Under what legal authority has SEBON halted application registration and approval? Who will bear the economic cost incurred by companies unable to raise capital? And why has the Ministry of Finance remained silent on this critical issue, failing to monitor SEBON's adherence to its primary mandate?

The capital market is a vital engine for economic growth, enabling companies to raise essential capital for expansion and job creation. If SEBON, the very institution tasked with nurturing this ecosystem, chooses to obstruct capital formation, its fundamental purpose comes into question. The regulator's duty is to ensure smooth entry and exit mechanisms for companies and investors, not to dictate market movements by arbitrary means. SEBON must immediately address these pressing concerns, provide transparent explanations, and reinstate the normal functioning of the IPO application and approval process to restore confidence in Nepal's capital market.