What is an IPO and How to Get an IPO in Nepal: Complete Guide

Investing in an Initial Public Offering (IPO) can be an exciting opportunity for investors to buy shares of a company before they become available in the secondary market. For many in Nepal, IPOs are a preferred method of investing, as they provide a chance to own shares at the offer price before the stock starts trading publicly, potentially leading to higher returns. In this blog, we’ll cover everything you need to know about IPOs, how they work, and how you can apply for an IPO in Nepal.

What is an IPO?

An Initial Public Offering (IPO) is the process through which a privately held company first offers its shares to the general public to raise capital. By issuing shares to the public, a company transitions from being privately owned to publicly traded. The money raised from the IPO helps the company finance its expansion plans, pay off debts, or pursue other growth opportunities.

For investors, buying shares during an IPO means acquiring a stake in the company at an early stage, often at a lower price than what the shares might trade for after they are listed on the stock exchange.

Why Do Companies Go Public?

Companies decide to go public for a variety of reasons, such as:

Raising Capital: The main objective is to raise funds for expansion, research and development, and other corporate activities.
Increase Brand Awareness: Going public increases a company’s visibility and credibility in the market.
Provide Liquidity: IPOs provide an opportunity for early investors and company founders to sell part of their stakes and cash out.
Employee Motivation: Companies can reward employees with stock options, giving them an incentive to contribute to the company’s growth.

Types of IPO Investors

In an IPO, investors are generally categorized into three main groups:

Retail Investors: Individual investors who apply for shares, usually in smaller quantities.
Institutional Investors: Large institutions, such as mutual funds, banks, and insurance companies, who invest larger amounts.
Non-Institutional Investors (NIIs): Individuals or entities that invest amounts larger than what retail investors typically invest but not as much as institutional investors.

IPO Process in Nepal

In Nepal, IPOs are issued under the supervision of the Securities Board of Nepal (SEBON), which regulates and approves companies planning to go public. Here’s a step-by-step overview of the IPO process:

Approval from SEBON: The company seeking to go public submits an application to SEBON for approval.
Prospectus Publication: After getting approval, the company publishes a prospectus outlining details of the IPO, including the business model, financial statements, risks, and how the funds will be used.
Application Period: Once the prospectus is published, the IPO is opened for subscription by the general public. The application period usually lasts for a few days, during which investors can apply for shares.
Allotment: After the subscription period ends, shares are allotted to investors based on the number of applications received. In cases where an IPO is oversubscribed, shares are distributed via a lottery system.
Listing on NEPSE: Once the allotment is complete, the company’s shares are listed on the Nepal Stock Exchange (NEPSE), where they can be traded in the secondary market.

How to Apply for an IPO in Nepal

To invest in an IPO in Nepal, you need to follow a series of steps. Here’s how you can get started:

1. Open a Demat Account

The first requirement to apply for an IPO is to have a Demat (Dematerialized) account. A Demat account is used to hold shares in electronic form, making the process of applying, holding, and trading shares efficient and paperless.

Visit a Depository Participant (DP), such as a bank or brokerage firm authorized by CDSC (Central Depository System and Clearing Limited).
Fill out the application form and submit documents like your citizenship certificate and passport-sized photographs.
After verification, you will receive a BOID (Beneficial Owner Identification Number), which is required to manage your shares.

2. Open a Mero Share Account

A Mero Share account allows you to apply for IPOs online and monitor your investment portfolio.

After opening a Demat account, apply for Mero Share services from your DP.
You will receive login credentials that you can use to access your Mero Share account.

3. Apply for an IPO via Mero Share

Once you have your Demat and Mero Share accounts ready, you can apply for IPOs through the Mero Share website:

Login to Mero Share: Visit Mero Share’s website and log in using your credentials.
Go to My ASBA: Click on “My ASBA” (Application Supported by Blocked Amount) to view the available IPOs.
Select the IPO: Select the IPO you want to apply for, fill in the number of shares, and confirm the details.
Bank Account Verification: Your bank account linked to Mero Share will be used to block the required amount. This amount will be automatically deducted if shares are allotted.
Submit Application: Once you submit the application, you will receive a confirmation number.

4. Allotment and Refund Process

After the IPO application period closes, the company allots shares to investors. If the IPO is oversubscribed, shares are allotted through a lottery system. If you do not get allotted shares, the blocked amount in your bank account will be refunded automatically.

How Nepalese Living Abroad Can Benefit from IPOs

For Nepalese living outside the country, such as in Dubai, Qatar, or Saudi Arabia, investing in IPOs in Nepal offers a great way to stay connected with their homeland’s economic growth. By investing in Nepalese IPOs, expatriates can diversify their portfolios, potentially benefit from high returns, and support the economic progress of Nepal. With the availability of online platforms like Mero Share, applying for IPOs is convenient and accessible, allowing Nepalese abroad to manage their investments and take part in opportunities back home without having to be physically present.

Benefits of Investing in IPOs

Potential for High Returns: IPOs often allow investors to buy shares at a lower price, and if the company performs well, the value of these shares can increase significantly.
Early Investment Opportunity: Investing during the IPO stage gives you a chance to own a stake in a company before it becomes widely available in the secondary market.
Diversification: IPOs provide a chance to diversify your investment portfolio, especially if the company belongs to a growing or new sector.
Discount for Retail Investors: In some cases, companies offer a discount to retail investors, making it an attractive investment opportunity.

Things to Consider Before Applying for an IPO

Company Background: Read the prospectus carefully and understand the company’s financials, business model, and growth prospects.
Risk Factors: Understand the risks involved, as investing in an IPO can be uncertain and volatile.
Oversubscription: IPOs in Nepal are often oversubscribed, meaning there is no guarantee of getting shares. It’s important to manage expectations.
Investment Horizon: Decide whether you are applying for short-term gains or if you plan to hold the shares for the long term.

Conclusion

Investing in an IPO in Nepal is an exciting opportunity for both new and experienced investors. It allows you to invest in companies at an early stage and be a part of their growth journey. To apply for an IPO, you’ll need a Demat account and a Mero Share account, which provide a convenient and secure way to manage your investments. Make sure to do thorough research and understand the risks before investing in any IPO.

By following the steps in this guide, you can easily apply for IPOs in Nepal and make informed decisions to achieve your financial goals. Happy investing!