NEPSE Investor Glossary: IPO, FPO, Right & Bonus Share, Debenture, Auction, Book-Building, ASBA

An IPO (Initial Public Offering) is the first time a private company sells its ordinary shares to the general public and lists them on the Nepal Stock Exchange (NEPSE). Ordinary IPOs in Nepal are almost always issued at the Rs 100 par (face) value, which is why a minimum application of 10 units (kitta) costs Rs 1,000. Once the issue closes, shares are allotted and the company becomes publicly traded.

An FPO (Further Public Offering, sometimes called a Follow-on Public Offering) is a later sale of new shares by a company that is already listed on NEPSE. Because the market already knows the company's track record and current price, an FPO is usually priced above par (above Rs 100) but at a discount to the prevailing market price. The Securities Board of Nepal (SEBON) requires the FPO price to be justified using valuation criteria such as net worth per share, capitalised earnings, the 180-day average closing market price and discounted cash flow.

The practical difference for an investor is risk and pricing. An IPO is a debut with limited public history, offered at the fixed Rs 100 par, so the upside on listing can be large but the company is unproven in the market. An FPO is issued by a known, listed company, priced closer to its market value, so it is generally lower-risk but with a smaller listing 'pop'. Both IPO and FPO applications are made the same way, through the ASBA system, and you can estimate the amount payable with the site's IPO calculator.

A right share (right share / हकप्रद शेयर) is a new share offered only to a company's existing shareholders, in proportion to how many shares they already hold, before it is offered to anyone else. This pre-emptive right protects current owners from having their stake diluted when the company raises fresh capital. Rights are expressed as a ratio — for example a 1:1 right means each shareholder may buy one new share for every share owned, while a 2:1 right means two new shares for every one held.

Right shares in Nepal are issued at the Rs 100 par value, which is normally well below the market price, so they are effectively offered at a discount to reward loyal shareholders and encourage them to subscribe. Banks, insurers and other companies use right issues to meet paid-up capital requirements set by regulators. A listed company must obtain SEBON approval and pass the required shareholder resolution before the issue opens.

If you do not want the rights, in many cases you can renounce (give up) them or let them lapse. When a right issue is not fully taken up, the unsubscribed portion does not simply disappear — the company auctions those leftover shares to the general public, typically about a week after the allotment of the right shares. You can model the cost and post-issue position of a rights offer using the site's share calculator.

A bonus share (bonus share / बोनस शेयर) is an additional share given free of charge to existing shareholders, again in proportion to their holding. The question many beginners ask — 'bonus share kasari aaucha?' (how do bonus shares come?) — has a simple answer: the company capitalises its accumulated profits and reserves, converting retained earnings into new share capital, and issues the resulting shares to shareholders at no cost. Under the Companies Act, 2063 (2006 AD), a bonus issue requires a special resolution at the general meeting and can only be made out of amounts otherwise available for distribution as dividend.

A bonus is quoted as a percentage of your existing holding. A 20% bonus means you receive 20 extra shares for every 100 you own. Crucially, a bonus issue does not add new money to the company or increase its total value — it only divides the same value across more shares, so NEPSE automatically adjusts (lowers) the share price on the book-closure date to reflect the larger share count.

Bonus shares are a form of stock dividend, distinct from a cash dividend, which pays money directly. In Nepal, receiving bonus shares is not taxed at the moment of receipt; instead, tax applies when you sell. Note that cash dividends are generally subject to a 5% withholding tax at distribution — investors should confirm the current rate for their situation, as tax rules can change.

A debenture (debenture / डिबेन्चर) is a debt instrument: instead of buying ownership (shares), you lend money to a company for a fixed term at a predetermined interest rate. The 'what is debenture in Nepal' answer is that a debenture holder is a creditor, not an owner — you receive periodic interest (the coupon) and get your principal back at maturity, whether or not the company pays a dividend to shareholders. Securities under Nepali law expressly include shares, bonds, debentures and stocks.

Debentures come in several forms. Secured debentures are backed by a pledge or mortgage over the company's assets, giving holders a priority claim if the company is wound up; unsecured debentures rely only on the issuer's creditworthiness. Convertible debentures can later be exchanged for shares if the memorandum or articles of association allowed for it, while non-convertible debentures simply run to maturity as a loan.

Debentures in Nepal are governed by the Companies Act, 2063, the Securities Act, 2063 and SEBON rules. Under Section 34 of the Companies Act, a company may not issue debentures until it has obtained approval to commence business and its issued capital is fully paid up, and it must notify the registrar of the issue. Bank and finance-company debentures are commonly listed on NEPSE, so investors can also buy and sell them in the secondary market rather than holding to maturity.

Book-building is a price-discovery method for larger issues, introduced by SEBON in 2020 (2077 BS) to move beyond the flat Rs 100 par pricing for companies whose true value is much higher. Instead of fixing the price in advance, the issuer sets a base price and a price band, and Qualified Institutional Investors (QIIs) bid at different prices within that band. The band is set at plus or minus 20% of the base price — so a base price of Rs 500 allows bids from Rs 400 (floor) to Rs 600 (cap).

The rules reserve a share allocation between institutional and general investors and require genuine competitive bidding. Reported requirements include a minimum number of qualified institutional investors participating, a cap on how much any single institution may bid for, and eligibility conditions such as a record of profitability and a per-share net worth comfortably above the per-share capital. The cut-off price established by institutional demand then feeds into the price at which the public tranche is offered.

For an ordinary retail applicant, the takeaway is that most Nepali IPOs are still plain Rs 100 par issues applied for through ASBA, while book-building is used only for select, larger companies. Where it applies, the per-unit price you pay is the discovered offer price, not Rs 100, so check the offer document before applying.

An auction in the NEPSE context is a competitive sale in which shares are offered to bidders and the highest bids win, rather than being allotted at a fixed price. The most common trigger is an under-subscribed right issue. When existing shareholders do not take up all their rights — through lack of funds, lack of interest or simple inattention — the leftover shares are pooled and auctioned to the general public, usually about seven days after the right shares are allotted. Unlike the rights themselves, an auction is open to all investors, not just existing shareholders.

The second common type is a promoter-share auction. Promoter (founder) shares are ordinarily restricted, but institutions sometimes need to sell them — for example to book profit, or to comply with a regulator's directive such as a Nepal Rastra Bank instruction that banks unwind cross-holdings in other banks and financial institutions. These blocks are put up for tender/auction and the highest bidder acquires them.

Auctions matter because they are one of the few ways to buy into a company outside an IPO, FPO or right window. Because the price is set by bidding, disciplined investors should decide a maximum in advance rather than chase the block.

ASBA stands for Applications Supported by Blocked Amount, and it is the mechanism through which almost every IPO, FPO and right-share application in Nepal is now made. The 'what is ASBA' answer is that, when you apply, the application amount is blocked (frozen) in your own bank account rather than being taken away from you. The money stays in your account and keeps earning interest; the bank simply cannot let you spend it until the allotment is decided.

C-ASBA (Centralised ASBA) is the SEBON/CDSC-run version that lets you apply online through MeroShare using a Demat account. To apply you need a Demat account with a depository participant and a C-ASBA Registration Number (CRN) from your bank, which links your bank account to your Demat account — without a valid CRN, MeroShare will not accept your application even if you have the funds. Banks charge a small fixed ASBA fee per application; the exact amount varies by bank.

If your application is unsuccessful — a frequent outcome, because popular IPOs are heavily oversubscribed — the block is simply released and the money becomes freely available again, with nothing debited. If you are allotted shares, only the amount for the allotted units is debited. In an oversubscribed ordinary IPO, allotment is done by a computerised lottery run under CDSC, and SEBON rules aim to give each successful applicant at least the minimum 10 units where possible.