Abhishek Kushwaha

In Nepal, Initial Public Offerings (IPOs) are seen as a golden opportunity to earn quick profits. Many people believe investing in IPOs can make them rich overnight. But behind this dream lies a dark reality. Some companies are using IPOs as a tool to mislead and loot the general public. They present fake financial projections, manipulate their earnings, and even engage in insider trading. As the IPO craze grows in Nepal, companies are taking advantage of this hype to sell overpriced shares with the help of weak regulations and poor oversight by authorities.

For example, in the fiscal year 2079/80, SEBON approved 42 companies to issue IPOs worth Rs. 22 billion, the highest in Nepal’s history. However, in the next year, only 24 companies were approved, and this year so far, only 9. Despite the drop in approvals, the number of Demat accounts and IPO applicants continues to rise, showing the growing interest of the general public. Today, there are over 66.7 lakh Demat accounts in Nepal, and on average, 14 lakh people apply for each IPO. Some companies are using this craze to treat NEPSE like a dumping ground. When they make a profit, the promoters keep it for themselves. But when losses start, they turn to the public through IPOs to raise money and shift the burden.

One such case is Om MeghaShree Pharmaceuticals. Their financial reports show negative earnings for years, yet they projected massive profits for the future to gain SEBON’s approval. Similarly, companies like Sonapur and Ghorahi Cement issued IPOs at high premium prices and promised growth in their offer letters. But after the IPO, neither company has been able to report any profits. This shows how some companies mislead investors by showing fake data in their offer documents just to get approved.

A more serious case is Reliance Spinning Mills. They received approval to issue shares at Rs. 820.80 through book-building. However, they were found to have manipulated their financial reports by inflating their earnings and hiding large dues owed to Nepal Electricity Authority. Experts say their real share value was around Rs. 179.45, and when listed, the shares opened at only Rs. 538.35. This massive gap between the IPO price and market value shows how heavily manipulated the numbers were. The case is still under court review.

Even government officials have been involved in insider trading. NEPSE’s CEO Chandra Singh Saud resigned after it was revealed that he bought 10,000 shares of Sarbottam Cement in his wife’s name before the company’s IPO. SEBON’s former chairman Bhisma Raj Dhungana also bought shares for his daughter at a much cheaper rate than the public offering. This clearly shows how deeply rooted the manipulation is, even among the top regulators.

Another issue is the lock-in period. While banks and insurance companies have a five-year lock-in on promoter shares, other sectors like hydropower, manufacturing, and hospitality have only three years. After this period, promoters can sell their shares to the public, often at high prices. For example, Shivam Cement’s share price dropped heavily after its promoter shares were unlocked and dumped into the market. Many companies follow this same pattern, using IPOs to bring in public money and then cashing out for personal gain.

To fix this broken system, SEBON must take strict action. First, the lock-in period should be equal for all sectors, or at least be made stricter. Second, the leadership at SEBON and NEPSE must be clean and competent, and new strict laws should be introduced to stop such manipulations. Until this happens, the general public must remain alert and avoid blindly applying for IPOs. It’s important to review a company’s past financial records, check its board of directors, and understand its business before investing. Only then can we protect ourselves and help build a fair and transparent stock market in Nepal.