Crowdfunding

The liquidity surplus situation with a very limited investment opportunity has made IPO a popular choice among investors.  Now it seems like it doesn’t matter what sector you throw in. Every IPO seems to be overwhelmingly oversubscribed.

Companies	Total collection	Required Amount
Ngadi Group	8.15 billion	97,373,700
NIBL	48 billion	5,450,702,188
Mero Micro Finance	12.5 billion	61,200,000
Global IME Samunnat Scheme	2.2 billion	800,000,000
Total	70.85 billion	6,409,275,888

*Rs. 71 billion (approx) doesn’t represent the cumulative collection. In fact, Rs. 71 billion was deposited at a time.

All the companies that made their NEPSE debuts in 2015 are now trading above their IPO prices. This is the most convincing reason for investors this year to stay in a long queue in order to submit their IPO application forms.

Unfortunately, there is no guarantee that investors will get everything they applied for. The actual allotment is very low due to staggering collections. Very often, investors seem to be disappointed with the amount of shares they actually receive in the IPOs.

As a result, investors are now seeking for other investment avenues. To be more specific, they are keeping eye on hydropower promoter shares.

Hydropower promoter share has proved to be no slouch in the recent times. I had explained why commoners are interested in hydropower promoter shares in my previous post.

Rs. 71 billion approx. invested by the general people (as shown in the above table) shows that they have money and they will not hesitate to invest if they sense profit. The overwhelming response and the amount collected in the IPOs have caused quite a stir. Experts are now demanding to focus more on hydropower construction with domestic funds.

Are our regulations friendly enough to support this idea?

The only option for hydropower companies to raise equity from public is the IPO and it does come with few conditions.

According to Securities Board of Nepal (SEBON)

1)       The public issuance (IPOs) shall be made making at least 51% promoters’ share holding.

2)      The share amount as agreed by the promoters should have been paid in full

In short, hydropower companies can raise up to 49% through IPOs after settling the full amount committed by the promoters.

Raising equity through IPO, however, is never a problem for hydropower companies (this is what the market is suggesting). The most difficult part is to raise the promoter shares.

51 percent can be quite a lot if the project size is big and there is no way it can be raised by a small number of promoters.

One good way to raise fund (promoter shares in our case) is crowdfunding. Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business ventures. It makes use of internet. It is a popular method of raising fund in the developed countries.

However, we do not have proper rules regarding this instrument. More than that there is a condition imposed by SEBON which makes it impossible to raise the promoter shares.

  

According to SEBON “If a corporate body intends to sale and distribute its securities to more than fifty persons at a time, it shall be required to make public issuance of securities”.

This has forced hydropower companies to collect promoters’ investment from commoners indirectly on the basis of personal relations. Collecting money on the basis of personal relations will not be able to soak up the surplus liquidity for a noble cause.

Unless and until we create a mechanism and relax the SEBON’s clause, the idea of mobilizing the vast domestic financial resource will always be a dream.