IPPAN Strongly Objects to SEBON’s Stringent IPO Guidelines, Warns of Severe Capital Drought in Hydropower

Kathmandu — The Independent Power Producers' Association, Nepal (IPPAN) has fiercely opposed the Securities Board of Nepal’s (SEBON) proposed draft for the 'Public Issue General Qualification Guidelines, 2026 (2083 BS)'. Issuing a stern warning, the umbrella organization of private energy developers stated that subjecting capital-intensive hydropower projects to the same regulatory framework as banks, insurance companies, and manufacturing industries will choke off investment and lead to the collapse of under-construction energy projects.

Registering a detailed, point-by-point amendment proposal at SEBON on Tuesday, IPPAN argued that the regulator's attempt to enforce a one-size-fits-all approach blatantly ignores the unique financial structure and long gestation periods inherent to the hydropower sector. Developers have firmly demanded a separate IPO checklist and regulatory criteria tailored specifically to the realities of energy projects, rather than imposing generalized constraints that threaten to disrupt the nation's energy development cycle.

The most contentious issue in the proposed draft is the stringent prerequisite requiring a company to be in "continuous operation" prior to issuing an Initial Public Offering (IPO). In the hydropower sector, a project is only deemed operational once construction is complete and electricity generation begins. However, the most critical need for massive capital infusion occurs precisely during the construction phase. IPPAN analysts warned that if projects are barred from raising public funds until they begin generating power, none will be able to complete construction. As a pragmatic alternative, IPPAN suggested that hydropower companies should be eligible to apply for an IPO once they achieve 65 percent physical progress.

Similarly, SEBON’s proposal barring companies with a per-share net worth below its par value (Rs 100) from issuing an IPO has sent shockwaves through the energy sector. IPPAN clarified that it is a standard accounting reality for a hydropower project’s net worth to dip below Rs 100—often to around Rs 90—during the construction phase due to heavy depreciation and capitalized costs. Revenues only start flowing once power generation begins. If this clause is enforced verbatim, IPPAN claims that nearly 60 percent of currently active hydropower projects will be disqualified from issuing public shares. They have proposed that SEBON should permit IPOs based on the project's 'power value' even if the net worth momentarily stands at Rs 90.

Furthermore, developers have accused SEBON of severe jurisdictional overreach and attempting to institutionalize unlimited discretionary powers. The draft proposes that SEBON could intervene in setting debt-equity ratios and conducting forensic audits of private commercial agreements between developers and contractors. IPPAN argues that banks already scrutinize and finalize the debt-equity ratio during the 'financial closure' phase, making SEBON's intervention a redundant and burdensome double layer of bureaucracy. Likewise, assessing environmental risks falls strictly under the jurisdiction of the Ministry of Forests and Environment, not the securities regulator. Developers fear that vague clauses allowing SEBON to impose additional conditions "if deemed necessary" will foster red tape, delays, and potential corruption.

The draft's mandate requiring a 'fit and proper' test for all promoter shareholders, directors, and CEOs has also been dismissed as practically impossible for the hydro sector. Unlike corporate firms, hydropower projects often have thousands of local grassroots citizens serving as promoter shareholders. IPPAN argued that conducting background checks on thousands of individuals is administratively unfeasible and that blacklisting an entire project's IPO due to the financial discrepancies of a single minor promoter is a gross injustice to the rest of the investors. They suggested limiting this test strictly to the Board of Directors and executive management.

To end the chronic tendency of regulatory files languishing in government cabinets for months, IPPAN has demanded a statutory, time-bound approval process. The developers proposed that SEBON must complete its initial review within 15 days of application, process additional requested documents within 7 days, and issue a final binding decision within 60 to 90 days. Additionally, IPPAN firmly demanded a grandfather clause, ensuring that hydropower projects already in the IPO pipeline prior to the implementation of the new guidelines are processed under the old 2017 (2074 BS) regulations to ensure fairness and transitional stability. While SEBON's intent to block financially hollow companies from the stock market is theoretically sound, stakeholders warn that tightening the screws without understanding the ground realities of infrastructure development will ultimately derail Nepal's energy ambitions.