The Securities Board of Nepal (Sebon) has begun preparations to open the way for small and medium industries (SMEs) to enter the secondary market. Issuing a draft of 'Securities Issuance and Trading Regulations of Small and medium-sized enterprises (SMEs)', Sebon has sought suggestions from the stakeholders concerned. This is the first time that Sebon has introduced such regulations to encourage SMEs to raise money from the capital market. Once the rules come into force, SMEs can issue an initial public offering (IPO) to become publicly listed companies. As per the proposed regulations, Sebon has classified companies with paid-up capital of less than Rs 250m as SMEs. Such companies can issue an IPO at a face value of Rs 100 per share and investors can apply for a minimum of 250 units of shares.

SMEs can issue an IPO in the ratio of 30 percent to 49 percent of their paid-up capital.

The draft of the regulation has stated that SMEs will be allowed to issue IPO only one year after they become public. The Sebon has exempted SMEs from mandatory credit rating for IPOs. Currently, companies issuing IPO and rights shares must get credit ratings from credit rating agencies. The proposed regulation says credit rating is not mandatory for SMEs. However, the board may instruct concerned companies for a credit rating if deemed necessary. As per the draft, SMEs can also issue IPO at a premium price. But, they have to meet certain criteria such as remaining profit in three fiscal years. According to Sebon, it will bring a separate SME index into operation. "A separate SME index will be brought into operation through which trading of SMEs will be carried out," said Ramesh Kumar Hamal, chairman of the Sebon.