NEPSE Revises IPO Opening Price Rules, Shifting Focus to Face Value

The Nepal Stock Exchange (NEPSE) has revised its mechanism for determining the opening trading range of companies listed after issuing initial public offerings (IPOs). Under the new provision, companies with positive net worth will no longer have their opening prices linked to per-share net worth. Instead, the exchange will set the first trading range based on the face value of shares, allowing prices to fluctuate up to three times the nominal value.

Previously, NEPSE determined the opening range by taking up to three times the net worth per share stated in a company’s prospectus. This method was considered closer to a firm’s financial position. However, the revised rule removes this provision, marking a significant shift in how newly listed stocks enter secondary trading.

According to NEPSE spokesperson Murahari Parajuli, companies with positive net worth will now have an opening range capped at three times their face value. In contrast, firms with negative net worth will still have their opening range calculated based on three times their net worth. Officials say the change aims to simplify pricing and reduce disputes during the listing process.

Under the revised system, recently listed companies such as Reliance Spinning Mills and Salpa Bikas Bank were allowed to trade within a range of Rs 100 to Rs 300 on their first trading day. This range reflects the face value of Rs 100 per share, multiplied by three, as per the new guideline.

However, Reliance Spinning Mills has expressed dissatisfaction with the decision. The company had issued its IPO through the book-building process at Rs 820.80 per share, a price determined through market-based bidding. Management argues that this valuation reflects genuine investor demand and should have been respected while fixing the opening price.

In a public statement, the company said the book-building mechanism is designed to establish fair market value through institutional participation. Ignoring this benchmark during listing, it claimed, undermines the credibility of the pricing process. Despite its objections, Reliance confirmed that it proceeded with listing under NEPSE’s prescribed range.

The revised rule has also raised concerns among investors, particularly those who participated in book-built IPOs. Under the system, applicants were required to apply for at least 50 shares, meaning a minimum investment of Rs 41,040 at Rs 820.80 per share. With trading opening at a maximum of Rs 300, such investors now face an immediate notional loss of around Rs 26,000.

Market analysts point out that even if the stock hits the daily upper circuit of 10 percent for ten consecutive trading days, its price would reach only around Rs 782. This remains below the IPO issue price, suggesting that investors may have to wait a prolonged period before recovering their initial investment.

NEPSE officials say the rule change was partly driven by technical and regulatory challenges. Under the earlier system, even three times the net worth of Reliance Spinning Mills was lower than its book-built price. This mismatch had delayed its listing for an extended period, creating uncertainty for both the company and investors.

To avoid similar complications and potential legal disputes, the exchange decided to revise the opening range policy altogether. Sources say the amendment was also intended to ensure smoother listings and reduce administrative bottlenecks in the approval process.

The new provision, however, has triggered fresh debate in the capital market. Critics argue that linking opening prices solely to face value fails to reflect a company’s real market worth, especially for firms listed through book building. They warn that this could discourage quality companies from using market-based pricing mechanisms in the future.

Supporters of the rule, on the other hand, believe it promotes stability and prevents excessive volatility in early trading. They argue that gradual price discovery in the secondary market is healthier than sharp fluctuations driven by high initial valuations.

As more companies enter the market through book building, the impact of the revised rule is expected to become more visible. Whether NEPSE’s new approach strikes the right balance between investor protection, market efficiency, and corporate valuation remains to be seen. For now, the policy marks a significant shift in Nepal’s IPO listing framework and is likely to shape future debates on capital market reforms.