The Rights Issue Nepal framework is established under the Companies Act, 2063 and regulated by the Securities Board of Nepal (SEBON). This mechanism grants existing shareholders the preemptive right to purchase additional shares at a discounted price relative to market value. Consequently, companies can raise capital without diluting existing shareholder control, while shareholders benefit from preferential pricing.
Furthermore, recent SEBON regulatory changes have modified allotment procedures to prioritize existing shareholders over public auctions. This comprehensive tutorial is presented to clarify every aspect of Rights Issue Nepal procedures, from board approval to final allotment.
Rights Issue Nepal refers to the issuance of new shares to existing shareholders in proportion to their current holdings, typically at a discounted price. Governed by Section 30 of the Companies Act, 2063 and SEBON regulations, this mechanism protects shareholder pre-emptive rights while enabling companies to raise additional capital.
Moreover, Rights Issue Nepal serves as an alternative to public offerings, maintaining the existing ownership structure. The discount to market price incentivizes shareholder participation, though the issue price in Nepal is typically set at par value (NPR 100) regardless of market price. As a result, significant arbitrage opportunities exist when market prices substantially exceed par value.
In addition, rights shares may be issued at par or premium, depending on company performance and regulatory approval. Companies must meet specific profitability and net worth criteria to issue shares at premium.
| Legislation | Key Provisions | Enforcing Authority |
|---|---|---|
| Companies Act, 2063 | Section 30: Shareholder rights, capital increases | OCR |
| Securities Act, 2063 | Public offering regulations, disclosure requirements | SEBON |
| SEBON Regulations | Rights issue approval, pricing guidelines, allotment procedures | SEBON |
| Securities Registration & Issuance Regulations | Detailed procedural requirements | SEBON |
Rights Issue Nepal is primarily available to public limited companies listed on the Nepal Stock Exchange (NEPSE). However, private companies may also conduct rights issues subject to AOA provisions and OCR compliance. Therefore, the following entities participate:
Consequently, rights issues prioritize existing shareholders, distinguishing them from Further Public Offerings (FPOs) that dilute existing ownership.
SEBON has introduced significant changes to rights issue regulations:
The rights issue process is structured sequentially. Therefore, following these steps ensures compliance with Rights Issue Nepal requirements:
The board of directors evaluates the need for capital raising and approves the rights issue proposal. Key decisions include:
The rights issue proposal is submitted to shareholders for approval:
The company submits application to SEBON with:
SEBON reviews compliance with:
SEBON approves the record date for determining eligible shareholders:
The rights issue opens for subscription:
Following subscription period closure:
Understanding pricing is critical for both issuers and investors:
Most Nepalese companies issue rights shares at par value (NPR 100), regardless of market price. This creates significant arbitrage opportunities when:
Companies may issue at premium if they meet:
Theoretical ex-rights price calculation:
Proper documentation ensures regulatory approval. Therefore, the following documents are required:
| Document | Purpose | Prepared By |
|---|---|---|
| Board Resolution | Corporate approval for rights issue | Company Secretary |
| Shareholder Resolution | Authorization for capital increase | General Meeting |
| Letter of Offer/Prospectus | Disclosure to shareholders and regulators | Company/Merchant Bank |
| SEBON Application | Regulatory approval request | Company |
| Audited Financials | Financial position verification | Statutory Auditor |
| Credit Rating Report | Creditworthiness assessment (if required) | Rating Agency |
| Valuation Report | Premium pricing justification (if applicable) | Independent Valuer |
| Utilization Plan | Fund deployment schedule | Company Management |
| Basis of Allotment | Allocation methodology for oversubscription | Issue Manager |
Recent SEBON changes have modified allotment priorities:
| Scenario | Benefit to Shareholder |
|---|---|
| Market price NPR 500, Rights at NPR 100 | NPR 400 profit per share (if sold at market) |
| Excess allotment of 100 shares | Additional NPR 26,667 gain (example calculation) |
| No public auction competition | Higher probability of excess share allocation |
| Proportional excess allocation | Fair distribution based on demand |
After completing Rights Issue Nepal, ongoing requirements apply:
| Violation | Consequence |
|---|---|
| Misuse of funds | Regulatory sanctions, director liability |
| Delayed allotment | SEBON penalties, trading restrictions |
| Inadequate disclosure | Prospectus liability, investor claims |
| Deviation from approved terms | Cancellation of issue, refund obligations |
Understanding distinctions helps select optimal capital-raising methods:
| Feature | Rights Issue | Bonus Issue | FPO |
|---|---|---|---|
| Payment Required | Yes (discounted price) | No (free) | Yes (market price) |
| Shareholder Priority | Existing shareholders only | Existing shareholders | General public |
| Capital Raised | Yes (fresh funds) | No (capitalization of reserves) | Yes (fresh funds) |
| Ownership Dilution | Maintained if subscribed | No change | Dilution |
| Purpose | Capital expansion, debt repayment | Reward shareholders, increase liquidity | Large capital requirements |
| Regulatory Approval | SEBON approval required | Board resolution (simple) | Extensive SEBON process |
| Pricing | At par or premium (discounted) | Not applicable | Market determined |
Rights issues are offered exclusively to existing shareholders at preferential prices. FPOs (Further Public Offerings) are made to the general public, diluting existing shareholders. Rights issues protect pre-emptive rights; FPOs do not.
Yes. Shareholders may renounce their rights in favor of third parties. The rights themselves may trade in the secondary market before the issue closing date, allowing shareholders to monetize entitlements without subscribing.
Under new SEBON rules (2025), unsubscribed shares are allocated to existing shareholders who applied for excess shares. Previously, unsubscribed shares were auctioned to the general public.
No statutory limit exists. However, repeated rights issues without commensurate performance growth attract regulatory scrutiny. Some sectors (microfinance) face specific restrictions on rights issues.
Yes. Companies meeting profitability and net worth criteria may issue at premium. However, market practice predominantly uses par value (NPR 100) regardless of market price.
The record date is set after SEBON approval, typically allowing 3-5 days between announcement and record date. Only shareholders holding shares on the record date are entitled to rights shares.
Rights shares acquired are treated as new investments for capital gains purposes. The cost basis is the issue price paid. No immediate tax liability arises upon allotment; capital gains tax applies only upon subsequent sale.
Yes. Private companies may issue rights shares subject to AOA provisions and OCR compliance. However, the process is less regulated than for public listed companies.
From board decision to listing, the process typically takes 3-6 months, depending on SEBON approval timelines and market conditions. SEBON approval alone may take 1-3 months.
Yes. Foreign investors holding shares on the record date are entitled to rights shares on the same terms as domestic shareholders, subject to FITTA compliance and NRB regulations.
Rights Issue Nepal offers listed companies an efficient mechanism for capital raising while preserving shareholder ownership structures. Therefore, meticulous attention to SEBON regulations, pricing strategies, and allotment procedures ensures successful issuance.
Consequently, engagement of qualified merchant banks and legal professionals is recommended for complex rights issues, particularly those involving premium pricing or significant capital amounts. The recent regulatory changes enhancing shareholder benefits demonstrate SEBON's commitment to investor protection.
For professional assistance with Rights Issue Nepal, Attorney Nepal provides comprehensive corporate advisory services. Their team of capital markets specialists handles SEBON approvals, prospectus preparation, compliance management, and regulatory liaison to ensure seamless rights issue execution.
Contact Attorney Nepal today to execute your rights issue with regulatory precision and strategic advantage.
February 15, 2026 - BY Admin