IPPAN objects to SEBON's new IPO criteria proposal, demands separate provision for hydropower

The Independent Power Producers' Association, Nepal (IPPAN) has demanded a review of the draft 'General Eligibility Criteria for Public Offering Guidelines, 2083' proposed by the Securities Board of Nepal (SEBON), taking into account the nature and capital requirements of the hydropower sector.

IPPAN has suggested removing and amending various provisions in the proposed draft, stating that the proposed arrangements could affect the capital management of hydropower projects, the public offering process, and the continuity of investment. IPPAN registered its suggestions regarding the guideline proposal with SEBON on Tuesday.

IPPAN President Mohan Dangi said that since the energy sector is directly linked to economic development, industrialization, job creation, revenue mobilization, and foreign currency earnings, hydropower projects should be viewed as a sector requiring long-term and large-scale capital, and conditions that obstruct investment should not be imposed. According to him, while formulating public offering arrangements, attention must be paid to investor protection as well as the nature and capital requirements of the project.

'The hydropower sector requires a different regulatory arrangement than other sectors,' he said. 'Since the business nature and capital structure of banking, insurance, hydropower, pharmaceuticals, and manufacturing industries differ, applying the same criteria to all institutions is not appropriate.' He suggested creating a separate paragraph and a separate IPO checklist for the hydropower sector.

Demand to remove provision barring under-construction projects from IPO

In the draft issued by SEBON, a provision has been proposed requiring a hydropower company to be in continuous operation before issuing ordinary shares. IPPAN argues that this provision is impractical for hydropower projects and should be removed. IPPAN claims that since a hydropower company is considered 'in operation' only after the project it promotes is completed and begins generating electricity, if this word remains, under-construction projects will not even be able to apply for IPO issuance. IPPAN President Dangi also said that since hydropower projects require large capital during the construction phase itself, an arrangement must be made to allow public investment mobilization at this stage.

IPPAN has suggested that an arrangement be made allowing applications for IPOs after the physical progress of a hydropower project reaches about 65 percent. IPPAN has suggested to SEBON that a separate IPO checklist be created for hydropower according to the nature of the project.

IPO should be allowed even if net worth is below par value

In the net worth provision proposed in SEBON's draft, it is stated that the per-share net worth of an organized institution must not be less than the par value. IPPAN has demanded that this provision be removed for manufacturing industries, especially hydropower projects. 'During the construction period of a hydropower project, the company's net worth can fall below 90 rupees due to depreciation. But since the income situation changes after the project is completed and begins generating electricity, IPO should not be halted based solely on the net worth during the construction period,' said President Dangi.

IPPAN has suggested that the path for public share issuance should be opened by disclosing full details, underwriting, and credit rating to inform investors about risks. IPPAN claims that if the proposed net worth provision remains as is, about 60 percent of hydropower projects may be unable to issue shares to the general public. IPPAN has suggested to SEBON that a provision be included allowing IPO issuance for hydropower companies even when net worth is up to 90 rupees, considering 'power value' as an additional basis.

SEBON should not prescribe debt-equity ratio

In the draft guideline, it is proposed that SEBON may determine criteria regarding debt-equity ratio, interest payment capacity, and other financial indicators according to sectoral nature. IPPAN has suggested that the debt-equity ratio provision should be removed entirely. According to IPPAN, since the matter of how much debt and how much equity a hydropower project should take is related to the project's financial management, if a provision is made requiring SEBON's approval again at the time of IPO issuance, another layer of regulatory approval will be added before financial management of the project. IPPAN argues that since the debt-equity ratio is determined while managing the project's finances with the bank, it is not necessary for SEBON to prescribe it again.