Cleaning Up Nepal’s IPO Pipeline

The Securities Board of Nepal (SEBON) has imposed stricter requirements for companies seeking to launch Initial Public Offerings (IPOs), with a focus on those with poor financial conditions or dubious accounting practices. Companies that demonstrate chronic losses, low net worth, or evidence of financial manipulation will be subjected to mandatory third-party audits before being approved to go public. If a company's net worth falls below half of its paid-up capital after adjustments, its financials will be independently audited. If more than 75% of revenue is in the form of loans or receivables, the board will suspect a problem and take action. Transactions involving related parties, abrupt changes in accounting procedures, or gains derived from non-operating income will also prompt further scrutiny. These measures are expected to end the days of presenting poor balance sheets and sneaking through the IPO door. This tightening did not occur out of thin air. It comes after years of silent protests and serious repercussions. Too many firms with weak foundations were able to attract public funds, only to leave small investors with shares that looked better on paper than in reality.