Possibility for “Exit” seems encouraging for hydro investors with the recent growth in capital market.

In my last post GETTING INTO NEPALESE HYDRO I wrote about how to get into Nepalese hydro. But in this post, I will be writing about the “Exit” environment that Nepal offers to foreign investors. Before moving to the subject matter, I would like to mention about the Nepalese law regarding “exit”.


For Banks and Financial Institution, the promoter lock-in period is 5 years from the date of commercial operation. Promoter’s shares remains promoter shares forever. The price will be roughly about half the price of public shares. This is the case for financial institutions in Nepal.

On the other hand, the lock-in period for hydropower companies in Nepal is 3 years from the date of listing in the Stock Exchange. Additionally, there is no price discrimination between public and promoter shares. This is the privilege hydropower company enjoys in Nepal, helping investors exit if they want to.

Having said that; one of the major reasons why foreign investors hesitate to invest in Nepal is due to lack of opportunity for exit. Although hydropower investors enjoy many privileges, making an exit is never an easy task. The route through Nepal Stock Exchange (NEPSE) was not reliable in the past because of the low trade volume.

Things are changing now. I see a lot of positive changes in the recent time. A lot of new instruments are going to add funds for capital market. And the simple equation is “the more money to buy shares, the easier to exit”. Below are some instruments and policies that will certainly help to increase the volume.

MUTUAL FUND

The concept of Mutual Fund is relatively new in the context of Nepal. The first Mutual Fund in Nepal is Siddhartha Growth Investment Fund I managed by Siddhartha Capital Markets Limited. The 50 million units at a par value of NPR 10 each was launched back in November, 2012.

Soon, Nabil Balanced Fund I managed by Nabil Bank’s subsidiary Nabil Investment Banking  with 75 million units at a par value of NPR 10 each followed the trend.

A lot of fund managers are showing interest to follow the crowd. Five mutual fund managers have already submitted their prospectus for approval at the capital market regulator — Securities Board of Nepal (Sebon).

NIBL Capital Markets Limited (a subsidiary company of Nepal Investment Bank Limited), NMB Capital and Siddhartha Capital have planned to issue mutual fund scheme worth NPR 800 million, NPR 600 million and NPR 800 million respectively. They have already submitted their prospectus for approval. Siddhartha Capital is already managing NPR 500 million and is going to float another scheme. Likewise, Laxmi Capital and Global IME bank are also in the verge to issue their own mutual funds. More mutual funds can be expected in the near future as the government has made mutual funds a non-taxable entity.

How does this help to increase the volume in NEPSE?

The maturity period of Mutual funds are 5 to 7 years and the schemes have up to 80 percent equity instrument and the remaining fund can be invested in fixed income securities such as government bonds and debentures. However, the equities have to be the equity from listed companies in NEPSE. This will certainly add up the volume.

CENTRAL DEPOSITORY SYSTEM (CDS)

GoN is in the process of making CDS compulsory. This will come into effect very soon. Under the concept of CDS, the practice of holding and moving the script of quoted shares physically will be displaced by a safe and dependable computerized book entry system. This will reduce the discrepancy rate apart from streamlining stock trading at par with top exchanges in the world. Though the system is launched lately compared to other countries, the new system is believed to ease the transaction in the security market.

How does this help to increase the volume in NEPSE?

Manual method like submitting share certificates to brokers, share transfer, share certificate validation and so on in the presence of owner at the broker’s office is required to buy and sale shares. Remember, all the official brokers are stationed in Kathmandu. Buying and selling shares from outside Kathmandu is almost impractical. With the introduction of CDS, anyone from anywhere (within Nepal) can buy shares with a click from their computer. I cannot tell you how much it will add up in the total trading amount but I am optimistic that this will result in the positive growth.

POLICY TO ALLOW NON RESIDENT NEPALI (NRN) TO INVEST DIRECTLY IN THE STOCK MARKET

GoN of Nepal is planning to open the door for Non-Resident-Nepali (NRN) to directly invest in the stock market within a month or two. It may be noted that the stock market of some of the neighboring countries, especially India, started to rise drastically after the government there allowed direct investment of NRIs and FIIS in the stock market.  For further information, please visit Govt drafts policy to allow NRNs to directly invest in stock market

Only those NRNs who have not forfeited their Nepali citizenship have been investing in the stock market so far. Once all NRNs can directly invest in the market, the market will see significant growth as NRNs have always shown interest to invest.

AGREEMENT BETWEEN BLOOMBERG AND NEPAL STOCK EXCHANGE

The recent signing between Bloomberg and Nepal Stock exchange to examine and disseminate information has created a lot of buzz not only in Nepal but also around the globe. The significance of this signing is well described in the article What does Nepal Stock Exchange (NEPSE) and Bloomberg’s agreement mean for Nepali businesses?

In short, investors from around the world will be watching NEPSE which may attract foreign investors in NEPSE.

PORTFOILO MANAGEMENT SERVICE (PMS)

The concept of managing individual/institutions’ wealth by the bunch of professionals is increasing in Nepal. Trusted companies like NIBL Capital, Nabil Invest, Laxmi Capital, Siddhartha Capital, Beed Management are offering this services. Other reputed companies are also in the pipeline to launch PMS. The whole idea is to collect the money from individuals/institutions and invest in various portfolios. Typically, the major portion is invested in equities (up to 90 percent)

SUMMARY

Right now the daily traded amount in NEPSE is around NPR 370 to NPR 400 million. With the implementation of above instruments and the policies, I will not be surprised if there is another zero behind the daily traded amount right now. Thus, future looks promising.


For further information please visit The Udaya Group

Santosh Thapa

Analyst